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Price, Trade Size, and Information Revelation in Multi-Period Securities Markets

Author

Listed:
  • Shino Takayama

    (The University of Sydney)

  • Han Ozsoylev

    (University of Oxford)

Abstract

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

Suggested Citation

  • Shino Takayama & Han Ozsoylev, 2005. "Price, Trade Size, and Information Revelation in Multi-Period Securities Markets," Finance 0510031, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpfi:0510031
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    References listed on IDEAS

    as
    1. Chakraborty, Archishman & Yilmaz, Bilge, 2004. "Informed manipulation," Journal of Economic Theory, Elsevier, vol. 114(1), pages 132-152, January.
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    3. 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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    6. Seppi, Duane J, 1990. " Equilibrium Block Trading and Asymmetric Information," Journal of Finance, American Finance Association, vol. 45(1), pages 73-94, March.
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    9. Copeland, Thomas E & Galai, Dan, 1983. " Information Effects on the Bid-Ask Spread," Journal of Finance, American Finance Association, vol. 38(5), pages 1457-1469, December.
    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. James Dow, 2004. "Is Liquidity Self-Fulfilling?," The Journal of Business, University of Chicago Press, vol. 77(4), pages 895-908, October.
    12. Joel Hasbrouck, 1999. "The Dynamics of Discrete Bid and Ask Quotes," Journal of Finance, American Finance Association, vol. 54(6), pages 2109-2142, December.
    13. Gur Huberman & Werner Stanzl, 2004. "Price Manipulation and Quasi-Arbitrage," Econometrica, Econometric Society, vol. 72(4), pages 1247-1275, July.
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    Cited by:

    1. Shino Takayama, 2013. "Price Manipulation, Dynamic Informed Trading and Tame Equilibria: Theory and Computation," Discussion Papers Series 492, School of Economics, University of Queensland, Australia.
    2. Katya Malinova & Andreas Park, 2009. "Liquidity, Volume, and Price Behavior: The Impact of Order vs. Quote Based Trading," Working Papers tecipa-358, University of Toronto, Department of Economics.
    3. Nihad Aliyev & Xue-Zhong He, 2017. "Ambiguous Market Making," Research Paper Series 383, Quantitative Finance Research Centre, University of Technology, Sydney.
    4. Malinova, Katya & Park, Andreas, 2013. "Liquidity, volume and price efficiency: The impact of order vs. quote driven trading," Journal of Financial Markets, Elsevier, vol. 16(1), pages 104-126.
    5. Louhichi, Waël, 2011. "What drives the volume-volatility relationship on Euronext Paris?," International Review of Financial Analysis, Elsevier, vol. 20(4), pages 200-206, August.

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    JEL classification:

    • G - Financial Economics

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