文档介绍：Strategic T rading and W elfare
in a Dynamic Mark et

Dimitri V a y anos
April 1998
Abstract
This pap er studies a dynamic mo del of a nancial mark et with N strategic
agen ts. Agen ts receiv e random sto c k endo wmen ts at eac h p erio d and trade
to share dividend risk. Endo wmen ts are the only priv ate information in the
mo del. W e nd that agen ts trade slo wly ev en when the time bet w een trades
go es to 0. In fact, w elfare loss due to strategic beha vior increases as the time
bet w een trades decreases. In the limit when the time b et w een trades go es to 0,
2
w elfare loss is of order 1 = N , and not 1 = N as in the static mo dels of the double
auctions literature. The mo del is v ery tractable and closed-form solutions are
obtained in a sp ecial case.

MIT Sloan Sc ho ol of Managemen t, 50 Memorial Driv e E52-437, Cam bridge MA 02142-1347,
tel 617-2532956, e-mail ******@ . I thank Drew F uden berg, P ete Kyle, W alter No v aes,
John Rob erts, Lones Smith, Jean Tirole, Jean-Luc Vila, Xa vier Viv es, Jiang W ang, and Ingrid
W erner, seminar participan ts at Berk eley , Boston Univ ersit y , Chicago, Duk e, Harv ard, LSE, MIT,
North w estern, Princeton, Stanford, T el-Aviv Univ ersit y ,T oulouse, UAB, UBC, UCLA, UCSD, ULB,
W ashington Univ ersit y at St Louis, and Y ale, participan ts at the ESF Summer Symp osium at
Gerzensee and at the AF A meetings in Boston for v ery in men ts. I am esp ecially
grateful to Hyun Song Shin (the editor) and t w o anon ymous referees men ts that greatly
impro v ed the pap er. Lee-Bath Nelson, Erik Stuart, and Muhamet Yildiz pro vided v p eten t
researc h assistance. JEL Nos C73, D44, G11.
1 In tro duction
Large traders, suc h as dealers, m utual funds, and p ension funds, pla y an increasingly
imp ortan t role in nancial mark ets. These agen ts' trades exceed the a v erage daily
v olume of man y securities and, according to a n um ber of empirical studies,