Heterogeneous Noisy Beliefs and Dynamic Competition in Financial Markets*

Fabrice Rousseau, Hervé Boco and Laurent Germain
Additional contact information
Hervé Boco: University of Toulouse Toulouse Business School ISAE
Laurent Germain: Workplace-Name:University of Toulouse Toulouse Business School ISAE

Economics Department Working Paper Series from Department of Economics, National University of Ireland - Maynooth

Abstract: This paper analyzes the competition of heterogeneously informed traders in a multi-auction setting. We obtain that the competition can take different forms depending on the number of traders, trading rounds and the noise in the information. When the number of traders is small and the number of trading rounds is large, traders may trade very aggressively at the opening and at the end of the trading day with lower trading intensity in between. Hence, we can explain volume patterns by the nature of the competition between traders rather than by pattern in the level of liquidity. We find that the noise in the signal may be beneficial for traders when the competition is strong as it gives them a monopolistic position on their private information. The amount of noise maximizing the trader’s expected profit increases with the number of trading rounds as well as the number of traders. This implies that the value of information is closely related to the market where that information is subsequently being used.

Keywords: efficiency; asymmetric information; noise; liquidity; adverse selection; competition. (search for similar items in EconPapers)
Pages: 41 pages
Date: 2016
New Economics Papers: this item is included in nep-cse, nep-mic and nep-mst
References: Add references at CitEc
Citations:

Downloads: (external link)
http://repec.maynoothuniversity.ie/mayecw-files/N269-16.pdf (application/pdf)

Related works:
Journal Article: Heterogeneous noisy beliefs and dynamic competition in financial markets (2016)
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:may:mayecw:n269-16.pdf

Access Statistics for this paper

More papers in Economics Department Working Paper Series from Department of Economics, National University of Ireland - Maynooth Contact information at EDIRC.
Bibliographic data for series maintained by ( this e-mail address is bad, please contact ).