Strategic Specialist and Market Liquidity

Dumitrescu, Ariadna

doi:10.2139/ssrn.942016

Cited by 2 publications

(6 citation statements)

References 46 publications

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“…I obtain a U‐shape relationship between volatility and the variance of supply V S (see Figure 8). This result is very different from the other Kyle‐type models and the results in Dumitrescu (2007), where the volatility of prices does not depend on the noise in supply. Therefore, this behaviour is not due to the presence of the strategic specialist, but to the release of some information about supply to the value‐informed traders.…”

contrasting

confidence: 90%

“…This is due to the fact that poor information about supply is aggregated in prices and then used further by all the traders who use the price as a signal. A similar result is obtained by Kyle (1989) and Dumitrescu (2007).…”

supporting

confidence: 88%

“…I omit here the analysis with respect to the asymmetry of information about the liquidation value of the asset (the variance of liquidation value of the asset), V v because the behaviour is very similar to the results obtained in Dumitrescu (2007). Note that the relationship between market liquidity and the variance of liquidation value, V v is also an inverted U‐shape.…”

Section: Transparency and Market Performancementioning

confidence: 63%

“…Note that the relationship between market liquidity and the variance of liquidation value, V v is also an inverted U‐shape. Dumitrescu (2007) proves analytically that the graph depicting market depth as a function of the variance of the liquidation value of the asset has an inverted U‐shape. However, in that case there is no exogenous disclosure of information about supply and since traders submit limit orders, they can infer some of this information from price.…”

Section: Transparency and Market Performancementioning

confidence: 91%

“…This approach has been used before by Gennotte and Leland (1990) who consider a model where speculators possess private and diverse information. In this model, I extend the model set forth by Dumitrescu (2007), who studies the role of a strategic specialist on market performance, by analysing how different levels of pre‐trade transparency affect market performance. This analysis is performed by allowing the value‐informed traders to also receive information about supply.…”

Section: The Modelmentioning

confidence: 99%

See 4 more Smart Citations

Liquidity and Optimal Market Transparency

Dumitrescu¹

2010

Euro Fin Management

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In this paper I explore some of the consequences of greater market transparency for market performance in the presence of a strategic specialist. Although numerous studies have dealt with this issue, previous work has only considered either fully transparent or fully opaque markets. My model allows for different levels of transparency, and therefore sheds light on how transparency affects market performance. I show that an intermediate level of transparency can improve market performance relative to the more extreme cases of full transparency or no transparency at all.

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contrasting

confidence: 90%

supporting

confidence: 88%