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Price, trade size, and information revelation in multi-period securities markets

  • Ozsoylev, Han N.
  • Takayama, Shino

We study price formation in securities markets, using the sequential trade framework of Glosten and Milgrom (1985). This paper makes one basic methodological advance over previous research on sequential securities trading: we allow traders to choose from n trade sizes in a multi-period market, where n can be arbitrarily large. We examine how trade size multiplicity affects the intertemporal dynamics of trading strategies, bid-ask spreads, and information revelation. We show that price impact, as a function of trade size, is increasing and exhibits (discrete) concavity.

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Article provided by Elsevier in its journal Journal of Financial Markets.

Volume (Year): 13 (2010)
Issue (Month): 1 (February)
Pages: 49-76

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Handle: RePEc:eee:finmar:v:13:y:2010:i:1:p:49-76
Contact details of provider: Web page: http://www.elsevier.com/locate/finmar

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  1. Hausman, J.A. & Lo, A.W. & MacKinlay, A.C., 1991. "An Ordered Probit Analysis of Transaction Stock Prices," Weiss Center Working Papers 26-91, Wharton School - Weiss Center for International Financial Research.
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  3. Ananth Madhavan & Seymour Smidt, . "A Bayesian Model of Intraday Specialist Pricing," Rodney L. White Center for Financial Research Working Papers 2-91, Wharton School Rodney L. White Center for Financial Research.
  4. Glosten, Lawrence R, 1989. "Insider Trading, Liquidity, and the Role of the Monopolist Specialist," The Journal of Business, University of Chicago Press, vol. 62(2), pages 211-35, April.
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  10. Glosten, Lawrence R. & Milgrom, Paul R., 1985. "Bid, ask and transaction prices in a specialist market with heterogeneously informed traders," Journal of Financial Economics, Elsevier, vol. 14(1), pages 71-100, March.
  11. Easley, David & O'Hara, Maureen, 1987. "Price, trade size, and information in securities markets," Journal of Financial Economics, Elsevier, vol. 19(1), pages 69-90, September.
  12. 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.
  13. Hasbrouck, Joel, 1991. " Measuring the Information Content of Stock Trades," Journal of Finance, American Finance Association, vol. 46(1), pages 179-207, March.
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  16. Madhavan, Ananth, 2000. "Market microstructure: A survey," Journal of Financial Markets, Elsevier, vol. 3(3), pages 205-258, August.
  17. Joel Hasbrouck, 1999. "The Dynamics of Discrete Bid and Ask Quotes," Journal of Finance, American Finance Association, vol. 54(6), pages 2109-2142, December.
  18. Seppi, Duane J, 1990. " Equilibrium Block Trading and Asymmetric Information," Journal of Finance, American Finance Association, vol. 45(1), pages 73-94, March.
  19. S. Baranzoni & P. Bianchi & L. Lambertini, 2000. "Market Structure," Working Papers 368, Dipartimento Scienze Economiche, Universita' di Bologna.
  20. Harris, Lawrence, 1991. "Stock Price Clustering and Discreteness," Review of Financial Studies, Society for Financial Studies, vol. 4(3), pages 389-415.
  21. Kerry Back & Shmuel Baruch, 2004. "Information in Securities Markets: Kyle Meets Glosten and Milgrom," Econometrica, Econometric Society, vol. 72(2), pages 433-465, 03.
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