Article

Belief-free Price Formation

Johannes Hörner, Stefano Lovo et Tristan Tomala

Résumé

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.

Mots-clés

Financial Market Microstructure; Belief-free Equilibria; Informed Market Makers; Price Volatility;

Codes JEL

  • C72: Noncooperative Games
  • C73: Stochastic and Dynamic Games • Evolutionary Games • Repeated Games
  • G1: General Financial Markets
  • G12: Asset Pricing • Trading Volume • Bond Interest Rates

Remplace

Johannes Hörner et Stefano Lovo, « Belief-free Price Formation », TSE Working Paper, n° 17-790, mars 2017.

Référence

Johannes Hörner, Stefano Lovo et Tristan Tomala, « Belief-free Price Formation », Journal of Financial Economics, vol. 127, n° 2, février 2018, p. 342–365.

Voir aussi

Publié dans

Journal of Financial Economics, vol. 127, n° 2, février 2018, p. 342–365