Government Intervention through Informed Trading in Financial Markets
Zhigang Qiu (),
Gaowang Wang and
MPRA Paper from University Library of Munich, Germany
We develop a theoretical model of government intervention in which a government with private information trades strategically with other market participants to achieve its policy goal of stabilizing asset prices. When the government has precise information and cares much about its policy goal, both the government and the informed insider engage in reversed trading strategies, but they trade against each other. Government intervention can improve both market liquidity and price efficiency, and the effectiveness of government intervention depends crucially on the information quality of the government.
Keywords: government intervention; trading; price stability; price efficiency (search for similar items in EconPapers)
JEL-codes: G14 G18 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-gth and nep-mst
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https://mpra.ub.uni-muenchen.de/107783/1/MPRA_paper_107783.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/107869/8/MPRA_paper_107869.pdf revised version (application/pdf)
Journal Article: Government intervention through informed trading in financial markets (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:107783
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