Abstract:*

We analyze a dynamic model of an investor who receives private information on an ongoing basis and faces a post-trading disclosure requirement. Characterizing the equilibrium of our trading game between two players—the investor and a market maker—can be reduced into a fictitious consumption-saving problem of one consumer with a borrowing constraint. Hence, insights from the consumption-saving literature, such as the permanent income hypothesis, can be adapted to shed light on the informed investor’s trading strategy and the equilibrium asset prices and market
liquidity. Further analysis suggests that these results arise because the informed investor’s commitment value is zero.

*Co-authored with H. Yan (DePaul University), X. Zhang (Central University of Finance and Economics) and D. Zhou (Central University of Finance and Economics)

General information:

Attendance to this seminar is possible by invitation only. Please send an e-mail to finsec-abs@uva.nl if your are interested in attending this seminar.