IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

Price Dynamics on a Stock Market with Asymmetric Information

  • Bernard De Meyer

    (Centre d'Economie de la Sorbonne, University of Paris)

The appearance of a Brownian term in the price dynamics on a stock market was interpreted in [De Meyer, Moussa-Saley (2003)] as a consequence of the informational asymmetries between agents. To take benefit of their private information without revealing it to fast, the informed agents have to introduce a noise on their actions, and all these noises introduced in the day after day transactions for strategic reasons will aggregate in a Brownian Motion. We prove in the present paper that this kind of argument leads not only to the appearance of the Brownian motion, but it also narrows the class of the price dynamics: the price process will be, as defined in this paper, a continuous martingale of maximal variation. This class of dynamics contains in particular Black and Scholes' as well as Bachelier's dynamics. The main result in this paper is that this class is quite universal and independent of a particular model: the informed agent can choose the speed of revelation of his private information. He determines in this way the posterior martingale L, where L_{q} is the expected value of an asset at stage q given the information of the uninformed agents. The payoff of the informed agent at stage q can typically be expressed as a 1-homogeneous function M of L_{q+1}-L_{q}. In a game with n stages, the informed agent will therefore chose the martingale L? that maximizes the M-variation. Under a mere continuity hypothesis on M, we prove in this paper that L? will converge to a continuous martingale of maximal variation. This limit is independent of M.

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.

File URL:
Download Restriction: no

Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1604.

in new window

Length: 27 pages
Date of creation: Feb 2007
Date of revision:
Publication status: Published in Games and Economic Behavior (May 2010), 69(1): 42-71
Handle: RePEc:cwl:cwldpp:1604
Contact details of provider: Postal:
Yale University, Box 208281, New Haven, CT 06520-8281 USA

Phone: (203) 432-3702
Fax: (203) 432-6167
Web page:

More information through EDIRC

Order Information: Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. DE MEYER, Bernard, 1996. "The Maximal Variation of a Bounded Martingale and the Central Limit Theorem," CORE Discussion Papers 1996035, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Mertens,Jean-François & Sorin,Sylvain & Zamir,Shmuel, 2015. "Repeated Games," Cambridge Books, Cambridge University Press, number 9781107030206.
  3. Bernard De Meyer & Alexandre Marino, 2005. "Duality and optimal strategies in the finitely repeated zero-sum games with incomplete information on both sides," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00193996, HAL.
  4. Bernard De Meyer & Ehud Lehrer & Dinah Rosenberg, 2009. "Evaluating information in zero-sum games with incomplete information on both sides," Documents de travail du Centre d'Economie de la Sorbonne 09035, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  5. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November.
  6. Victor Domansky, 2007. "Repeated games with asymmetric information and random price fluctuations at finance markets," International Journal of Game Theory, Springer, vol. 36(2), pages 241-257, October.
  7. Hadiza Moussa Saley & Bernard De Meyer, 2003. "On the strategic origin of Brownian motion in finance," International Journal of Game Theory, Springer, vol. 31(2), pages 285-319.
  8. Alexandre Marino & Bernard De Meyer, 2005. "Continuous versus Discrete Market Games," Cowles Foundation Discussion Papers 1535, Cowles Foundation for Research in Economics, Yale University.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:cwl:cwldpp:1604. 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: (Matthew C. Regan)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.