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Hörner, Johannes
, Lovo, Stefano and Tomala, Tristan
(2018)
Belief-free Price Formation.
Journal of Financial Economics, 127 (2).
pp. 342-365.
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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: | Article |
|---|---|
| Language: | English |
| Date: | February 2018 |
| Refereed: | Yes |
| 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) |
| Site: | UT1 |
| Date Deposited: | 03 May 2018 13:16 |
| Last Modified: | 02 Apr 2021 15:57 |
| OAI Identifier: | oai:tse-fr.eu:31599 |
| URI: | https://publications.ut-capitole.fr/id/eprint/25622 |
Available Versions of this Item
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Belief-free Price Formation. (deposited 29 Mar 2017 09:34)
- Belief-free Price Formation. (deposited 03 May 2018 13:16) [Currently Displayed]
