Strategic Trading with Asymmetrically Informed Traders and Long-Lived Information

Published

Journal Article

A dynamic model of strategic trading with two asymmetrically informed traders is analyzed where one informed trader knows the information seen by both informed traders, and the other informed trader only knows his private information. While the first informed trader is better informed, the second informed trader can make inferences about this extra information; in fact, the second informed trader can make sharper inferences from the order flow than the market maker about the extra information. In this setting, competition among the informed traders has a very interesting form. The informed trader with the additional information trades less intensely on that information early on, and both informed traders trade very intensely on their common information. This makes it more difficult for the trader with less information to learn about the information he does not have. When there are only a few remaining trading periods and the information known to both traders has largely been revealed through their trading, then the trader with the additional information trades more intensely on the basis of his private information. © 1994, School of Business Administration, University of Washington. All rights reserved.

Full Text

Duke Authors

Cited Authors

  • Foster, FD; Viswanathan, S

Published Date

  • January 1, 1994

Published In

Volume / Issue

  • 29 / 4

Start / End Page

  • 499 - 518

Electronic International Standard Serial Number (EISSN)

  • 1756-6916

International Standard Serial Number (ISSN)

  • 0022-1090

Digital Object Identifier (DOI)

  • 10.2307/2331107

Citation Source

  • Scopus