Article ID Journal Published Year Pages File Type
961091 Journal of Financial Markets 2010 28 Pages PDF
Abstract
We study price formation in securities markets, using the sequential trade framework of Glosten and Milgrom (1985). This paper makes one basic methodological advance over previous research on sequential securities trading: we allow traders to choose from n trade sizes in a multi-period market, where n can be arbitrarily large. We examine how trade size multiplicity affects the intertemporal dynamics of trading strategies, bid-ask spreads, and information revelation. We show that price impact, as a function of trade size, is increasing and exhibits (discrete) concavity.
Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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