Rational destabilization in a frictionless market

• 成果类型: Article
• 署名作者: Sadzik, Tomasz; Woolnough, Chris
• 署名单位: University of California System; University of California Los Angeles
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2020.105169
• 发表日期: 2021
• 关键词: Asymmetric information; Multidimensional signals; Market microstructure; arbitrage; Front-running

摘要

This paper studies the effect of informed trading on prices in a dynamic model with two-dimensional private information. We show that a trader with private information about the asset's value and a persistent liquidity shock trades along with and exacerbates the shock. The price changes more than if the shock was unexpected. When shocks are small, the with-wind trade is so strong that the distribution of prices and asset holdings changes discontinuously from the stabilizing linear equilibrium without them. The results demonstrate strategic price destabilization in a market with no capital or trade frictions. (C) 2020 Elsevier Inc. All rights reserved.