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Hörner, Johannes
and Lovo, Stefano
(2017)
Belief-free Price Formation.
TSE Working Paper, n. 17-790, Toulouse
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Official URL : http://tse-fr.eu/pub/31598
Abstract
We analyze security price formation in a dynamic setting in which long-lived dealers repeatedly compete for trading with potentially informed retail traders. For a class of market microstructure models, we characterize equilibria in which dealers’ dynamic pricing strategies are optimal no matter the private information each dealer may possess. In a generalized version of the Glosten and Milgrom model, these equilibria deliver price dynamics reminiscent of well-known stylized facts: price/trading-flow correlation, volatility clustering, price bubble and inventory/inter-dealer trading correlation.
| Item Type: | Monograph (Working Paper) |
|---|---|
| Language: | English |
| Date: | March 2017 |
| Place of Publication: | Toulouse |
| Uncontrolled Keywords: | Financial Market Microstructure, Belief-free Equilibria, Informed Market Makers, Price Volatility |
| JEL Classification: | C72 - Noncooperative Games C73 - Stochastic and Dynamic Games; Evolutionary Games; Repeated Games G1 - General Financial Markets G12 - Asset Pricing; Trading volume; Bond Interest Rates |
| Subjects: | B- ECONOMIE ET FINANCE |
| Divisions: | TSE-R (Toulouse) |
| Institution: | Université Toulouse 1 Capitole |
| Site: | UT1 |
| Date Deposited: | 29 Mar 2017 09:34 |
| Last Modified: | 02 Apr 2021 15:55 |
| OAI Identifier: | oai:tse-fr.eu:31598 |
| URI: | https://publications.ut-capitole.fr/id/eprint/23334 |
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