Concentrated Equilibrium and Intraday Patterns in Financial Markets

Ryosuke Ishii and Katsumasa Nishide

Applied Mathematical Finance, 2013, vol. 20, issue 1, 50-68

Abstract: We introduce endogenous participation of market makers into a Kyle-type model with long-lived asymmetric information. In our model with plausible parameter values, the trading volume and price volatility show a U-shaped intraday pattern, often observed in actual financial markets. It will be shown that the pattern is caused not only by the trading behaviour of liquidity traders but also by that of market makers. Our findings shed new light on the stylized fact of the trade concentration at the opening and closing periods.

Date: 2013
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DOI: 10.1080/1350486X.2012.656996

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