An equilibrium analysis of price impact and order flow
- Date: Thursday 11 March 2021, 14:00 – 15:00
- Location: Online event
- Type: Probability and Financial Mathematics, Seminars, Statistics
- Cost: Free
This seminar is given by Prof. Umut CETIN (London School of Economics)
We develop an equilibrium model for market impact of trades when investors with private signals execute via a competitive dealer. The fat tails in the signal distribution lead to a power law for price impact, while the impact is logarithmic for lighter tails. The spread increases with the degree of information asymmetry and the number of insiders. In case of a monopolistic insider, the last slice traded against the limit order book is priced at the liquidation value of the asset reminiscent of Kyle (1985). However, competition among the insiders leads to aggressive trading, hence vanishing profit in the limit.
Joint work with Henri Waelbroeck.
If you are interested to join this talk, please contact Dr Miryana Grigorova at email@example.com for the Zoom details.