Bid Ask Price Competition with Asymmetric Information Between Market Makers

Stefano Lovo and Riccardo Calcagno
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Riccardo Calcagno: CORE - Center of Operation Research and Econometrics [Louvain] - UCL - Université Catholique de Louvain = Catholic University of Louvain

Working Papers from HAL

Abstract: We consider the effect of asymmetric information on price formation process in a financial market where private information is held by a market maker. A Bayesian game is proposed in which there is price competition between two market makers with two different information partitions. At each stage players set bid and ask prices simultaneously and then trade occurs between market maker who proposes the most profitable price and liquidity traders. We characterize a set of partially revealing equilibria where the informed market maker's prices do not convey his private information. Informed player's equilibrium payoffsare proportional to prior beliefs of the market.

Keywords: repeated auction; insider trading; bid ask; asymmetric information; insider trading. (search for similar items in EconPapers)
Date: 1998-02
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Published in 1998

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Related works:
Journal Article: Bid-Ask Price Competition with Asymmetric Information between Market-Makers (2006)
Working Paper: Bid-Ask Price Competition with Asymmetric Information between Market-Makers (2006)
Working Paper: Bid-Ask Price Competition with Asymmetric Information between Market-Makers (2006)
Working Paper: Bid Ask Price Competition with Asymmetric Information Between Market Makers (2006)
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