Decentralized Trade with Private Values

Bruno Sultanum and Zachary Bethune

No 1630, 2016 Meeting Papers from Society for Economic Dynamics

Abstract: This paper studies trading dynamics in a decentralized market with incomplete information where agents valuations are independent and change over time. The model builds on Hugonnier et al. (2014) with two modifications: investors valuations are private information and bilateral trade occurs using the k-double auction proposed by Chatterjee and Samuelson (1983). We derive necessary and sufficient conditions for a steady state equilibrium, use numerical methods to solve for equilibria and study its properties. In particular, we study the effect of dispersion in private values on key variables such as trade volume, bid-ask spreads and the intensity of trade of different agents. Importantly, we show considering incomplete information will lead to different comparative statics with respect to dispersion and search frictions.

Date: 2016
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Working Paper: Private Information in Over-the-Counter Markets (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed016:1630

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