Dynamic Trading: Price Inertia, Front-Running and Relationship Banking
Event details
| Date | 09.10.2015 |
| Hour | 10:30 › 12:00 |
| Speaker | Yuliy SANNIKOV (Princeton University) |
| Location | |
| Category | Conferences - Seminars |
We build a linear-quadratic model to analyze trading in a market with private information and heterogeneous agents. Agents receive private endowment shocks and trade continuously. Agents differ in their need for trade as well as size, i.e. the ability to stay away from their ideal positions. In equilibrium, trade is gradual, its speed depends on the size of the market, and trade among large market participants is slower than that among small investors. Price has momentum due to the actions of large traders: it drifts up if the sellers are fewer and larger and the buyers are smaller and more competitive, and vice versa. The model captures welfare: it can answer questions about the social costs and benefits of high-frequency traders, the welfare consequences of market consolidation, and many others.
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