The dynamics of strategic information flows in stock markets
The authors model a stock market with multiple stocks. The stock values evolve stochastically in discrete time, over an infinite horizon, and are mutually and serially correlated. There are multiple informed traders who maximize profits that are discounted over the infinite horizon. These traders use price information about all assets dynamically. The decay rate of this cross-price information is quantified. The goal is to characterize equilibrium dynamics of such system. For this purpose the authors exploit stationarity, transform the model to the frequency domain so that the solutions are matrices of functions, which are then found in a direct way with a variational method. The equilibrium dynamics is characterized by iterating the informed traders' best responses in some function space. The interaction between new and old information is described.
scientific article; zbMATH DE number 5290177
scientific article