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Optimal speculative trade among large traders

Spiegler, R.; Eliaz, K.; (2007) Optimal speculative trade among large traders. (ELSE Working Papers 247). ESRC Centre for Economic Learning and Social Evolution: London, UK. Green open access

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Abstract

A collection of large traders hold heterogeneous prior beliefs regarding market fundamentals. This gives them a motive to engage in speculative trade with respect to market prices. Rather than assuming an exogenous set of financial instruments, we aim to characterize the financial instrument that maximizes the traders' gains from speculative trade, subject to the incentive constraints that result from the traders' ability to manipulate market prices. We show that this instrument affects price volatility without destroying ex-post efficient allocations. We also characterize the implementability of optimal speculative trade when the traders' prior beliefs are private information.

Type: Working / discussion paper
Title: Optimal speculative trade among large traders
Open access status: An open access version is available from UCL Discovery
Publisher version: http://else.econ.ucl.ac.uk/newweb/papers.php#2007
Language: English
UCL classification: UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of SandHS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/14451
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