Zachariadis, Konstantinos (2012) A baseline model of price formation in a sequential market. .
Full text not available from this repository.Abstract
A basic question in economics is how well the market price aggregates and transmits dispersed information. We address this using the trading protocol of Glosten and Milgrom (1985) but in an environment where there are neither pure liquidity-driven traders, nor pure speculators. We prove that the ask and bid prices in the limit collapse to a single value (the limiting price) that reveals the fundamental value of the asset. Adverse selection does not impede the estimation problem in the sense that the rate of convergence to the limiting price is the same as that of a fully signal-revealing mechanism.
| Item Type: | Monograph (Working Paper) |
|---|---|
| Additional Information: | © 2012 The author |
| Divisions: | Finance Financial Markets Group |
| Subjects: | H Social Sciences > HB Economic Theory H Social Sciences > HG Finance |
| JEL classification: | D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search; Learning; Information and Knowledge; Communication; Belief G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency; Event Studies |
| Date Deposited: | 16 Apr 2012 09:18 |
| Last Modified: | 13 Sep 2024 20:21 |
| URI: | http://eprints.lse.ac.uk/id/eprint/43081 |
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