Strategic trading when agents forecast the forecasts of others

Published

Journal Article

We analyze a multi-period model of trading with differentially informed traders, liquidity traders, and a market maker. Each informed trader's initial information is a noisy estimate of the long-term value of the asset, and the different signals received by informed traders can have a variety of correlation structures. With this setup, informed traders not only compete with each other for trading profits, they also learn about other traders' signals from the observed order flow. Our work suggests that the initial correlation among the informed traders' signals has a significant effect on the informed traders' profits and the informativeness of prices.

Full Text

Duke Authors

Cited Authors

  • Foster, FD; Viswanathan, S

Published Date

  • January 1, 1996

Published In

Volume / Issue

  • 51 / 4

Start / End Page

  • 1437 - 1478

International Standard Serial Number (ISSN)

  • 0022-1082

Digital Object Identifier (DOI)

  • 10.1111/j.1540-6261.1996.tb04075.x

Citation Source

  • Scopus