Smooth Trading with Overconfidence and Market Power

• 成果类型: Article
• 署名作者: Kyle, Albert S.; Obizhaeva, Anna A.; Wang, Yajun
• 署名单位: University System of Maryland; University of Maryland College Park; New Economic School
• 刊物名称: REVIEW OF ECONOMIC STUDIES
• ISSN/ISSBN: 0034-6527
• DOI: 10.1093/restud/rdx017
• 发表日期: 2018
• 页码: 611-662
• 关键词: imperfect competition; portfolio choice; informed traders; INFORMATION; volume; transactions; forecasts; momentum; auctions; BEHAVIOR

摘要

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. The price depends on a trader's inventory (permanent price impact) and the derivative of a trader's inventory (temporary price impact). More disagreement makes the market more liquid; without enough disagreement, there is no trade. Target inventories mean-revert at the same rate as private signals. Actual inventories smoothly adjust towards target inventories at an endogenous rate which increases with disagreement. Faster-than-equilibrium trading generates flash crashes by increasing temporary price impact. A Keynesian beauty contest dampens price fluctuations.