English, Article, Journal or magazine article edition: Bid-Ask Price Competition with Asymmetric Information between Market Makers Calcagno, Riccardo; Lovo, Stefano M.

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Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Bid-Ask Price Competition with Asymmetric Information between Market Makers
Author
  • Calcagno, Riccardo
  • Lovo, Stefano M.
Physical Description
  • preprint
Notes
  • We consider the effect of asymmetric information on price formation process in a financial market where private information is held by a market maker. A Bayesian game is proposed in which there is price competition between two market makers with two different information partitions. At each stage players set bid and ask prices simultaneously and then trade occurs between market maker who proposes the most profitable price and liquidity traders. We characterize a set of partially revealing equilibria where the informed market maker's prices do not convey his private information. Informed player's equilibrium payoffsare proportional to prior beliefs of the market.
  • RePEc:cor:louvco:1998016
  • We consider the effect of asymmetric information on price formation process in a financial market where private information is held by a market maker. A model is presented where two market makers with two different information partitions compete in prices. At each stage a bid-ask auction between the market makers occur, and the winner trades the asset against liquidity traders. We show that equilibrium prices do not convey all the information present in the market until the last stage. Moreover, we characterize a set of partially revealing equilibria where the informed market maker's prices do not convey his private information. Informed player's expected equilibrium payoffs depends on the beliefs of the market at the beginning of the game.
  • bid-ask prices; asymmetric information; repeated auction; insider trading
  • RePEc:ctl:louvir:1998012
Language
  • English
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