Dynamic Market Making with Asymmetric Information and Market Power

• 成果类型: Article
• 署名作者: Chen, Wen; Wang, Yajun
• 署名单位: Texas Tech University System; Texas Tech University; City University of New York (CUNY) System; Baruch College (CUNY)
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhae062
• 发表日期: 2024
• 页码: 235
• 关键词: INTRADAY PATTERNS; trading volume; prices; ask; liquidity; auctions; COSTS

摘要

We study the dynamics of trading volume and bid-ask spread using a multiperiod trading model with oligopolistic market makers. Traders smooth out their trading even though they are not strategic, and thus trading persists after the arrival of information or liquidity shocks. Traders act quickly on their private information while postponing hedging trades until later periods. The market power of market makers enables them to widen bid-ask spreads when trading incentives are heightened. Consequently, both trading volume and bid-ask spread may exhibit U-shaped patterns. Our model calibration aligns with the empirical intraday patterns observed in bid-ask spreads and trading volumes. (JEL D53, D61, D82, G12, G14, G18)