Strategic commitment by an informed speculator

Dan Bernhardt and Alex Boulatov
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Alex Boulatov: International College of Economics and Finance, Moscow,

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: We analyze speculation by an informed trader who can commit to her trading strategy in a Kyle-style dealership market. Market makers observe the exact parametric form of the speculator’s trading strategy but not her private information and then price competitively given the net (informed plus noise trade) order flow. We derive necessary and suffcient conditions for the speculator not to profit from commitment. This imposes conditions on model primitives satisfied by Normally-distributed uncertainty that give rise to linear equilibria, but are generically not satisfied. With commitment the speculator may trade less aggressively after some signals, but more aggressively after others.

Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:1553

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