A comparison of stock market mechanisms
This paper studies the relationship between the amount of public information that stock market prices incorporate and the equilibrium behavior of market participants. The analysis is framed in a static, NREE setup where traders exchange vectors of assets accessing multidimensional information under two alternative market structures. In the first (the unrestricted system), both informed and uninformed speculators can condition their demands for each traded asset on all equilibrium prices; in the second (the restricted system), they are restricted to condition their demand on the price of the asset they want to trade. I show that informed traders’ incentives to exploit multidimensional private information depend on the number of prices they can condition upon when submitting their demand schedules, and on the specific price formation process one considers. Building on this insight, I then give conditions under which the restricted system is more efficient than the unrestricted system.
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.:
- Vives, X., 1993.
"Short-Term Investment and the Informational Efficiency of the Market,"
UFAE and IAE Working Papers
207.93, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
- Vives, Xavier, 1995. "Short-Term Investment and the Informational Efficiency of the Market," Review of Financial Studies, Society for Financial Studies, vol. 8(1), pages 125-60.
- Xavier Vives, 1994. "Short-term Investment and the Informational Efficiency of the Market," CEPR Financial Markets Paper 0034, European Science Foundation Network in Financial Markets, c/o C.E.P.R, 77 Bastwick Street, London EC1V 3PZ..
- Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November.
- Wohl, Avi & Kandel, Shmuel, 1997. "Implications of an Index-Contingent Trading Mechanism," The Journal of Business, University of Chicago Press, vol. 70(4), pages 471-88, October.
- Admati, Anat R, 1985. "A Noisy Rational Expectations Equilibrium for Multi-asset Securities Markets," Econometrica, Econometric Society, vol. 53(3), pages 629-57, May.
- Caballe, J. & Krishnan, M., 1989. "Insider Trading and asset Pricing in an Imperfectly Competitive Multi- Secrity Market," UFAE and IAE Working Papers 132.90, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
- Nicholas Economides & Robert Schwartz,, .
"Electronic Call Market Trading,"
_001, Economics of Networks.
- Biais, Bruno, 1993. " Price Information and Equilibrium Liquidity in Fragmented and Centralized Markets," Journal of Finance, American Finance Association, vol. 48(1), pages 157-85, March.
- Subrahmanyam, Avanidhar, 1991. "A Theory of Trading in Stock Index Futures," Review of Financial Studies, Society for Financial Studies, vol. 4(1), pages 17-51.
- Ananth N. Madhavan, .
"Trading Mechanisms in Securities Markets,"
Rodney L. White Center for Financial Research Working Papers
16-90, Wharton School Rodney L. White Center for Financial Research.
- Pagano, Marco & Roell, Ailsa, 1996. " Transparency and Liquidity: A Comparison of Auction and Dealer Markets with Informed Trading," Journal of Finance, American Finance Association, vol. 51(2), pages 579-611, June.
When requesting a correction, please mention this item's handle: RePEc:upf:upfgen:545. 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: ()
If references are entirely missing, you can add them using this form.