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Strategic Trading with Asymmetrically Informed Traders and Long-Lived Information

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Author Info
Foster, F. Douglas
Viswanathan, S.

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Abstract

A dynamic model of strategic trading with two asymmetrically informed traders is analyzed where one informed trader knows the information seen by both informed traders, and the other informed trader only knows his private information. While the first informed trader is better informed, the second informed trader can make inferences about this extra information; in fact, the second informed trader can make sharper inferences from the order flow than the market maker about the extra information. In this setting, competition among the informed traders has a very interesting form. The informed trader with the additional information trades less intensely on that information early on, and both informed traders trade very intensely on their common information. This makes it more difficult for the trader with less information to learn about the information he does not have. When there are only a few remaining trading periods and the information known to both traders has largely been revealed through their trading, then the trader with the additional information trades more intensely on the basis of his private information.

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Publisher Info
Article provided by Cambridge University Press in its journal Journal of Financial and Quantitative Analysis.

Volume (Year): 29 (1994)
Issue (Month): 04 (December)
Pages: 499-518
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:cup:jfinqa:v:29:y:1994:i:04:p:499-518_00

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  1. Dan Bernhardt & Ryan Davies & John Spicer, 2000. "Long-term information, short-lived derivative securities," Working Papers 994, Queen's University, Department of Economics. [Downloadable!]
  2. Min-Hsien Chiang & Cheng-Hsiang Wang, 2004. "Intradaily relationship between information revelation and trading duration under market trends: the evidence of MSCI Taiwan stock index futures," Applied Economics Letters, Taylor and Francis Journals, vol. 11(8), pages 495-501, June. [Downloadable!] (restricted)
  3. Asani Sarkar & Robert A. Schwartz, 2006. "Two-sided markets and intertemporal trade clustering: insights into trading motives," Staff Reports 246, Federal Reserve Bank of New York. [Downloadable!]
  4. Alfonso Dufour & Robert Engle, 1999. "Time and the Price Impact of a Trade," University of California at San Diego, Economics Working Paper Series 1999-15, Department of Economics, UC San Diego. [Downloadable!]
    Other versions:
  5. Bryant, Henry L. & Haigh, Michael S., 2002. "Bid-Ask Spreads In Commodity Futures Markets," Working Papers 28587, University of Maryland, Department of Agricultural and Resource Economics. [Downloadable!]
  6. Ramdan Dridi & Laurent Germain, 2000. "Noise and Competition in Strategic Oligopoly," STICERD - Econometrics Paper Series /2000/395, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE. [Downloadable!]
  7. Nam, Jouahn & Wang, Jun & Zhang, Ge, 2004. "Strategic trading against retail investors with disposition effects," Working Papers 2004-11, University of New Orleans, Department of Economics and Finance. [Downloadable!]
  8. Dan Bernhardt & Bart Taub, 2006. "Kyle v. Kyle (’85 v. ’89)," Annals of Finance, Springer, vol. 2(1), pages 23-38, January. [Downloadable!] (restricted)
  9. Henry L. Bryant & Michael S. Haigh, 2004. "Bid-ask spreads in commodity futures markets," Applied Financial Economics, Taylor and Francis Journals, vol. 14(13), pages 923-936, September. [Downloadable!] (restricted)
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