On the Equivalence of Noise Trader and Hedger Models in Market Microstructure
Posted: 23 Dec 1999
Abstract
It is shown that the models of Spiegel and Subrahmanyam (1992, Review of Financial Studies 5(2), 307-329) and Kyle (1985, Econometrica 53, 1315-1335) are equivalent in the following sense: the equilibrium values of market depth, the expected total trading volume and the expected price level are the same in the two models. Equivalence exists whenever the uniformed traders hedge all of their endowments of risky shares. This occurs under two sets of parameter configurations. In both cases, the linear equilibrium in the hedger model always exists.
JEL Classification: D82, G12, G14
Suggested Citation: Suggested Citation
Sarkar, Asani, On the Equivalence of Noise Trader and Hedger Models in Market Microstructure. Available at SSRN: https://ssrn.com/abstract=5758
Feedback
Feedback to SSRN
If you need immediate assistance, call 877-SSRNHelp (877 777 6435) in the United States, or +1 212 448 2500 outside of the United States, 8:30AM to 6:00PM U.S. Eastern, Monday - Friday.