EconPapers    
Economics at your fingertips  
 

Strategic Trading in Informationally Complex Environments

Nicolas Lambert, Michael Ostrovsky and Mikhail Panov
Additional contact information
Mikhail Panov: Stanford University

Research Papers from Stanford University, Graduate School of Business

Abstract: We study trading behavior and the properties of prices in informationally complex markets. Our model is based on the single-period version of the linear-normal framework of Kyle (1985). We allow for essentially arbitrary correlations among the random variables involved in the model: the true value of the traded asset, the signals of strategic traders, the signals of competitive market makers, and the demand coming from liquidity traders. We first show that there always exists a unique linear equilibrium, which can be characterized analytically, and illustrate its properties in a series of examples. We then use this equilibrium characterization to study the informational eciency of prices as the number of strategic traders becomes large. If the demand from liquidity traders is uncorrelated with the true value of the asset or is positively correlated with it (conditional on other signals), then prices in large markets aggregate all available information. If, however, the demand from liquidity traders is negatively correlated with the true value of the asset, then prices in large markets aggregate all available information except that contained in liquidity demand.

Date: 2014-01
New Economics Papers: this item is included in nep-mfd and nep-mst
References: Add references at CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.gsb.stanford.edu/faculty-research/worki ... complex-environments

Related works:
Journal Article: Strategic Trading in Informationally Complex Environments (2018) Downloads
Working Paper: Strategic Trading in Informationally Complex Environments (2014) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecl:stabus:3021

Access Statistics for this paper

More papers in Research Papers from Stanford University, Graduate School of Business Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2024-06-09
Handle: RePEc:ecl:stabus:3021