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arXiv · 1502.02083

Information and Trading Targets in a Dynamic Market Equilibrium

Jin Hyuk Choi·Kasper Larsen·Duane J. Seppi
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Abstract

This paper investigates the equilibrium interactions between trading targets and private information in a multi-period Kyle (1985) market. There are two investors who each follow dynamic trading strategies: A strategic portfolio rebalancer who engages in order splitting to reach a cumulative trading target and an unconstrained strategic insider who trades on long-lived information. We consider cases in which the constrained rebalancer is partially informed as well as the special case in which the rebalancer is ex ante uninformed. We derive a linear Bayesian Nash equilibrium, describe an algorithm for computing such equilibria, and present numerical results on properties of these equilibria.

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Jin Hyuk Choi, Kasper Larsen, Duane J. Seppi. 2015-09-07. Information and Trading Targets in a Dynamic Market Equilibrium. https://arxiv.org/abs/1502.02083

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