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Intraday Trade in Dealership Markets

Author

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  • Dan Bernhardt
  • Eric Hughson

Abstract

We develop and test a structural asymmetric information transaction model to characterize the price impact of information on the NYSE. Unlike previous literature, we allow for mixed entry strategies on the part of informed traders and obtain an equilibrium where trades are temporally separated. in addition, when it is costly to transact, informed agents will not trade small quantities. Estimation of the structural parameters is performed using a maximum likelihood procedure. The price impact of information and the average informational innovation are found to be positive and significant. However, when the overidentifying restrictions are tested, the model is rejected with probability one.

Suggested Citation

  • Dan Bernhardt & Eric Hughson, 1991. "Intraday Trade in Dealership Markets," Working Papers 841, Queen's University, Department of Economics.
  • Handle: RePEc:qed:wpaper:841
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    File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_841.pdf
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Zhou, Deqing, 2013. "Irrational confidence, imperfect and long-lived information," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 383-405.
    2. Luis Angel Medran & Xavier Vives, 2004. "Regulating Insider Trading When Investment Matters," Review of Finance, European Finance Association, vol. 8(2), pages 199-277.
    3. Dan Bernhardt & Steven Heston, 2010. "Point Shaving In College Basketball: A Cautionary Tale For Forensic Economics," Economic Inquiry, Western Economic Association International, vol. 48(1), pages 14-25, January.
    4. Reitz, Stefan & Schmidt, Markus & Taylor, Mark P., 2009. "Financial Intermediation and the Role of Price Discrimination in a Two-Tier Market," MPRA Paper 15602, University Library of Munich, Germany.
    5. Osler, Carol L. & Mende, Alexander & Menkhoff, Lukas, 2011. "Price discovery in currency markets," Journal of International Money and Finance, Elsevier, vol. 30(8), pages 1696-1718.
    6. Foucault, Thierry & Gehrig, Thomas, 2008. "Stock price informativeness, cross-listings, and investment decisions," Journal of Financial Economics, Elsevier, vol. 88(1), pages 146-168, April.
    7. Fecht, Falko & Reitz, Stefan, 2015. "Euro money market trading during times of crisis," Kiel Working Papers 2012, Kiel Institute for the World Economy (IfW).
    8. Dan Bernhardt & Jianjun Miao, 2004. "Informed Trading When Information Becomes Stale," Journal of Finance, American Finance Association, vol. 59(1), pages 339-390, February.
    9. Carol Osler & Geir Bjonnes & Neophytos Kathitziotis, 2016. "Bid-Ask Spreads in OTC Markets," Working Papers 102, Brandeis University, Department of Economics and International Businesss School.
    10. Dan Bernhardt & Ryan J. Davies, 2009. "Smart fund managers? Stupid money?," Canadian Journal of Economics, Canadian Economics Association, vol. 42(2), pages 719-748, May.
    11. Odders-White, Elizabeth R. & Ready, Mark J., 2008. "The probability and magnitude of information events," Journal of Financial Economics, Elsevier, vol. 87(1), pages 227-248, January.
    12. Johnson, Timothy C., 2008. "Volume, liquidity, and liquidity risk," Journal of Financial Economics, Elsevier, vol. 87(2), pages 388-417, February.
    13. Duarte, Jefferson & Young, Lance, 2009. "Why is PIN priced?," Journal of Financial Economics, Elsevier, vol. 91(2), pages 119-138, February.
    14. Gehrig, Thomas & Haas, Marlene, 2016. "Anomalous Trading Prior to Lehman Brothers' Failure," CEPR Discussion Papers 11194, C.E.P.R. Discussion Papers.

    More about this item

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L68 - Industrial Organization - - Industry Studies: Manufacturing - - - Appliances; Furniture; Other Consumer Durables

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