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Information and Trading Targets in a Dynamic Market Equilibrium

Jin Hyuk Choi, Kasper Larsen and Duane J. Seppi

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Abstract: This paper investigates the equilibrium interactions between trading targets and private information in a multi-period Kyle (1985) market. There are two investors who each follow dynamic trading strategies: A strategic portfolio rebalancer who engages in order splitting to reach a cumulative trading target and an unconstrained strategic insider who trades on long-lived information. We consider cases in which the constrained rebalancer is partially informed as well as the special case in which the rebalancer is ex ante uninformed. We derive a linear Bayesian Nash equilibrium, describe an algorithm for computing such equilibria, and present numerical results on properties of these equilibria.

New Economics Papers: this item is included in nep-mic and nep-mst
Date: 2015-02, Revised 2015-09
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