Strategic trading in a dynamic noisy market

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Publication Details

Output type: Journal article

Author list: Vayanos D

Publisher: Wiley

Publication year: 2001

Journal: The Journal of Finance (0022-1082)

Volume number: 56

Issue number: 1

Start page: 131

End page: 171

Number of pages: 41

ISSN: 0022-1082

eISSN: 1540-6261

Languages: English-Great Britain (EN-GB)

Unpaywall Data

Open access status: green

Full text URL: http://eprints.lse.ac.uk/447/1/1largeJF.pdf

Abstract

This paper studies a dynamic model of a financial market with a strategic trader. In each period the strategic trader receives a privately observed endowment in the stock. He trades with competitive market makers to share risk. Noise traders are present in the market. After receiving a stock endowment, the strategic trader is shown to reduce his risk exposure either by selling at a decreasing rate over time or by selling and then buying back some of the shares sold. When the time between trades is small, the strategic trader reveals the information regarding his endowment very quickly.

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