Strategic Trading When Agents Forecast the Forecasts of Others
The authors analyze a multiperiod model of trading with differentially informed traders, liquidity traders, and a marketmaker. Each informed trader's initial information is a noisy estimate of the long-term value of the asset and the different signals received by informed traders can have a variety of correlation structures. With this setup, informed traders not only compete with each other for trading profits, they also learn about other traders' signals from the observed order flow. The authors' work suggests that the initial correlation among the informed traders' signals has a significant effect on the informed traders' profits and the informativeness of prices. Copyright 1996 by American Finance Association.
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Volume (Year): 51 (1996)
Issue (Month): 4 (September)
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- Foster, F Douglas & Viswanathan, S, 1993. "The Effect of Public Information and Competition on Trading Volume and Price Volatility," Review of Financial Studies, Society for Financial Studies, vol. 6(1), pages 23-56.
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- Holden, Craig W & Subrahmanyam, Avanidhar, 1992. " Long-Lived Private Information and Imperfect Competition," Journal of Finance, American Finance Association, vol. 47(1), pages 247-70, March.
- Foster, F Douglas & Viswanathan, S, 1995. "Can Speculative Trading Explain the Volume-Volatility Relation?," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(4), pages 379-96, October.
- Foster, F. Douglas & Viswanathan, S., 1994. "Strategic Trading with Asymmetrically Informed Traders and Long-Lived Information," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 29(04), pages 499-518, December.
- Vives, Xavier, 1988. "Aggregation of Information in Large Cournot Markets," Econometrica, Econometric Society, vol. 56(4), pages 851-76, July.
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- Harris, Milton & Raviv, Artur, 1993. "Differences of Opinion Make a Horse Race," Review of Financial Studies, Society for Financial Studies, vol. 6(3), pages 473-506.
- Chan, Kalok & Chung, Y. Peter & Johnson, Herb, 1995. "The Intraday Behavior of Bid-Ask Spreads for NYSE Stocks and CBOE Options," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 30(03), pages 329-346, September.
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