Smooth Trading with Overconfidence and Market Power
Event details
| Date | 06.11.2014 |
| Hour | 09:15 › 10:45 |
| Speaker | Albert KYLE (University of Maryland) |
| Location | |
| Category | Conferences - Seminars |
We describe a symmetric continuous-time model of trading among relatively overconfident oligopolistic informed traders with exponential utility. Traders agree to disagree about the precisions of their continuous flows of Gaussian private information. With enough disagreement, an equilibrium exists in which prices reveal the average of all traders’ signals immediately, but traders continue to trade gradually towards target inventories. The price is a linear function of a trader’s inventory, the derivative of a trader’s inventory, and the average other traders’ valuations. Prices reflect a “Keynesian beauty contest.” Faster-than-equilibrium trading generates “flash crashes.”
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Practical information
- Informed public
- Free