Strategic Trading When Agents Forecast the Forecasts of Others

Download or read book Strategic Trading When Agents Forecast the Forecasts of Others written by F. Douglas Foster and published by . This book was released on 1998 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze a multi-period model of trading with differentially informed traders, liquidity traders and a market maker. Each informed traders' initial information is a noisy estimate of the long-term value of the asset, and the different signals received by informed traders can have a variety of correlation structures. With this setup informed traders not only compete with each other for trading profits, they also learn about other traders' signals from the observed order flow. Our work suggests that the initial correlation among the informed traders' signals has a significant effect on the informed traders' profits and the informativeness of prices.