A Strategic Analysis Of Speculative Trade In A Two-Sided Asset Market With Information Diversity
The impossibility of speculative trade result (Milgrom and Stokey, 1982) provokes the questions why traders care about their private information, if they cannot profit from it and how the aggregate information can then be reflected in REE prices. This paper answers these questions by analyzing a speculative market as a game, which has the advantage of making the equilibrium strategies explicit. We introduce the new equilibrium selection concept of best reply resistance, which singles out those equilibria that remain an equilibrium even if opponent(s) deviate to a best reply. In the unique best reply resistant equilibrium of the two-player game trade at the REE price occurs each time both traders receive contradicting private information.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 07 (2005)
Issue (Month): 02 ()
|Contact details of provider:|| Web page: http://www.worldscinet.com/igtr/igtr.shtml |
|Order Information:|| Email: |
When requesting a correction, please mention this item's handle: RePEc:wsi:igtrxx:v:07:y:2005:i:02:p:151-170. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tai Tone Lim)
If references are entirely missing, you can add them using this form.