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Robustness of equilibrium in the Kyle model of informed speculation
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Boulatov, Alex and Bernhardt, Dan (2015) Robustness of equilibrium in the Kyle model of informed speculation. Annals of Finance, 11 (3). pp. 297-318. doi:10.1007/s10436-015-0264-2 ISSN 1614-2446.
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WRAP_Robust_DB_2015_June19_1 %2800000002%29.pdf - Accepted Version - Requires a PDF viewer. Download (635Kb) | Preview |
Official URL: http://dx.doi.org/10.1007/s10436-015-0264-2
Abstract
We analyze a static Kyle (1983) model in which a risk-neutral informed trader can use arbitrary (linear or non-linear) deterministic strategies, and a nite number of market makers can use arbitrary pricing rules. We establish a strong sense in which the linear Kyle equilibrium is robust: the rst variation in any agent's expected payo with respect to a small variation in his conjecture about the strategies of others vanishes at equilibrium. Thus, small errors in a market maker's beliefs about the informed speculator's trading strategy do not reduce his expected payo s. Therefore, the original equilibrium strategies remain optimal and still constitute an equilibrium (neglecting the higher-order terms.) We also establish that if a non-linear equilibrium exists, then it is not robust.
Item Type: | Journal Article | ||||||||
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Subjects: | H Social Sciences > HB Economic Theory H Social Sciences > HG Finance Q Science > QA Mathematics |
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Divisions: | Faculty of Social Sciences > Economics | ||||||||
Library of Congress Subject Headings (LCSH): | Speculation , Game theory--Econometric models, Equilibrium (Economics), Bayesian statistical decision theory, Capital market | ||||||||
Journal or Publication Title: | Annals of Finance | ||||||||
Publisher: | Springer | ||||||||
ISSN: | 1614-2446 | ||||||||
Official Date: | November 2015 | ||||||||
Dates: |
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Volume: | 11 | ||||||||
Number: | 3 | ||||||||
Page Range: | pp. 297-318 | ||||||||
DOI: | 10.1007/s10436-015-0264-2 | ||||||||
Status: | Peer Reviewed | ||||||||
Publication Status: | Published | ||||||||
Access rights to Published version: | Restricted or Subscription Access | ||||||||
Date of first compliant deposit: | 24 May 2016 | ||||||||
Date of first compliant Open Access: | 28 July 2016 | ||||||||
Funder: | Gosudarstvennyĭ universitet Vysshai︠a︡ shkola ėkonomiki (Russia) | ||||||||
Grant number: | No.11-01-0216 | ||||||||
Adapted As: |
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