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Price, Trade Size, and Information Revelation in Multi-Period Securities Markets

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Author Info
Shino Takayama (The University of Sydney)
Han Ozsoylev (University of Oxford)

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Abstract

We study price formation in securities markets, using the sequential trade framework of Glosten and Milgrom. This paper makes one basic methodological advance over previous research on sequential securities trading: we allow for multiple trade sizes for traders to choose from in a multi-period market. We examine how trade size multiplicity affects the intertemporal dynamics of trading strategies, bid-ask spreads, and information revelation. We also show that price impact, as a function of trade size, is increasing and exhibits (discrete) concavity.

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Paper provided by EconWPA in its series Finance with number 0510031.

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Date of creation: 28 Oct 2005
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Handle: RePEc:wpa:wuwpfi:0510031

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G - Financial Economics

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  1. Hasbrouck, Joel, 1991. " Measuring the Information Content of Stock Trades," Journal of Finance, American Finance Association, vol. 46(1), pages 179-207, March. [Downloadable!] (restricted)
  2. Madhavan, Ananth, 2000. "Market microstructure: A survey," Journal of Financial Markets, Elsevier, vol. 3(3), pages 205-258, August. [Downloadable!] (restricted)
  3. Copeland, Thomas E & Galai, Dan, 1983. " Information Effects on the Bid-Ask Spread," Journal of Finance, American Finance Association, vol. 38(5), pages 1457-69, December. [Downloadable!] (restricted)
  4. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November. [Downloadable!] (restricted)
  5. Joel Hasbrouck, 1999. "The Dynamics of Discrete Bid and Ask Quotes," Journal of Finance, American Finance Association, vol. 54(6), pages 2109-2142, December. [Downloadable!] (restricted)
  6. Biais, Bruno & Glosten, Larry & Spatt, Chester, 2005. "Market microstructure: A survey of microfoundations, empirical results, and policy implications," Journal of Financial Markets, Elsevier, vol. 8(2), pages 217-264, May. [Downloadable!] (restricted)
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  7. Kerry Back & Shmuel Baruch, 2004. "Information in Securities Markets: Kyle Meets Glosten and Milgrom," Econometrica, Econometric Society, vol. 72(2), pages 433-465, 03. [Downloadable!] (restricted)
  8. Harris, Lawrence, 1991. "Stock Price Clustering and Discreteness," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 4(3), pages 389-415. [Downloadable!] (restricted)
  9. Chakraborty, Archishman & Yilmaz, Bilge, 2004. "Informed manipulation," Journal of Economic Theory, Elsevier, vol. 114(1), pages 132-152, January. [Downloadable!] (restricted)
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