TEL> Vol.2 No.2, May 2012

Call Auction Markets with Risk-Averse Specialists

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ABSTRACT

We study a generalization of Kyle’s (1985) model to the case in which the specialist is risk-averse and does not set the transaction price according to semi-strong form efficiency. We see that Kyle’s call auction market is no longer a robust market structure, as linear Bayesian equilibria do not exist, irrespective of fundamentals, such as agents’ information, endowments and preferences. This result holds both when customers can submit only market orders and when limit orders are allowed too.

Cite this paper

P. Vitale, "Call Auction Markets with Risk-Averse Specialists," Theoretical Economics Letters, Vol. 2 No. 2, 2012, pp. 175-179. doi: 10.4236/tel.2012.22030.

References

[1] A. S. Kyle, “Continuous Auctions and Insider Trading,” Econometrica, Vol. 53, No. 6, 1985, pp. 1315-1335. doi:10.2307/1913210
[2] J. Hasbrouck, “Measuring the Information Content of Stock Trades,” Journal of Finance, Vol. 46, No. 1, 1991, pp. 178-208.
[3] A. Subrahmanyam, “Risk Aversion, Market Liquidity, and Price Efficiency,” Review of Financial Studies, Vol. 4, No. 3, 1991, pp. 416-441. doi:10.1093/rfs/4.3.417
[4] A. S. Kyle, “Informed Speculation with Imperfect Competition,” Review of Economic Studies, Vol. 56, No. 3, 1989, pp. 317-355. doi:10.2307/2297551

  
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