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1、Informed Speculation and Hedging in a Noncompetitive SecuritiesInformed Speculation andHedging in a NoncompetitiveSecurities MarketMatthew SpiegelAvanidhar Subrahmanyam tradingradersg thewithits an wel-fare, and demonstrates that several comparativeigm of uponagents.ity andn thet. Also,sesespite.th
2、asym-ances ine to thebecomeic noisyrational expectations markets. Variants of this para-digm have been used to analyze a wide variety ofissues, to derive comparative statics regarding marketWe gratefully acknowledge the feedback of the referee (Mike Fishman) and, David Hirsh-sions. All errorsubrahma
3、nyam,. NY 10027.7-3290Chester Span. We also thank Michael Brennan, Bruno Gerardleifer, and Gur Huberman for useful comments and/or discusare out sole responsibility. Address correspondence to A. SGraduate School of Business, Columbia University, New YorkThe Review of Financial Stu1d9i9e2s Volume 5,
4、number 2, pp. 30? 1992 The Review of Financial Studies 0893-9454/92/$1.5statics obtained from the standard paradKyle (1984, 1985) are altered significantlyendogenizing the trading motives of these In contrast to extant models, market liquidprice efficiency are both nonmonotonic inumber of uninformed
5、 hedgers in the markethe welfare of hedgmerosnotonicany decreawith the number of informed traders, dgreater competition between the informedThe applied literature on financial markets wimetric information has made impressive advrecent years. In no small measure, this is dumodel of Kyle (1984, 1985),
6、 which has now a standard framework for analyzing strategColumbia UniversityWe examine an adverse selection model ofin which both informed and uninformed tare rational, maximizing agents. Replacinprice inelastic “noise” or “liquidity” traders strategic, utility-maximizing hedgers permexplicit analys
7、is of the uninformed tradersliquidity and the informational efficiency of prices, and to obtainimplications for financial market; reg1 uWlahtiloen .this model is bothinsightful and a powerful analytical tool, it does possess the short-coming that “noise” or “liquidity” traders are assumed to trade e
8、xog-enous quantities without regard to other parameters in the environ-ment, and therefore to consistently suffer losses to traders with superiorinformation. This assumption simplifies the analysis and preventsprices from becoming fully revealing, in addition to sustaining trade associatedher extant
9、eing Glostenubstantivesearch usesbust is theuidity trad-parameters to addressre is similarizing agents. theoreticalndogenizingve for risk-s disparatelyades ofoportion of them a argue that,vate infor-le to expect-maximizingise traders.des of theseuninformedfleiderer (1988a,nan (1989), Bhu-1b), Holden
10、 andnd Seppi (1990,radigm, see Kyleing is also the) model, whichin a market with asymmetric information. The exogeneitywith “liquidity” traders is also a characteristic of most otadverse selection models of trading notable examples band Milgrom (1985) and Easley and OHara (1987). Two squestions aris
11、e: (i) Given that the extensive applied recomparative statics obtained from these models, how roanalysis to endogenizing the motives of these noise or liqers? (ii) What is the effect of changes in the economys on the welfare of these agents? The goal of this article isthe above issues in the context
12、 of a model whose structuto that of Kyle (1984), except that all traders act as maximThe analysis demonstrates that many conclusions in themicrostructure literature are altered significantly upon ethe trading motives of the noise traders.The need to hedge endowment shocks provides a motiaverse agent
13、s to trade, even when the market containinformed individu2a lFsr.om a real-world perspective, the trlarge financial institutions account for a considerable prthe trading volu3m Ien. turn, the size of these trades makessignificant source of short-run price movements. One cancommonly, institutional tr
14、ading does not arise from primation about specific securities. However, it is reasonabthese institutions to behave strategically (and in a utilityfashion), as opposed to the price-inelastic behavior of noTo the extent that hedging significantly motivates the tralarge institutions, it then becomes ju
15、stifiable to model agents as strategic hedgers.1 Applications and extensions of the Kyle (1984, 1985) model include Admati and P1988b). Foster and Viswanathan (1990, 1991), Caball (1989), Caball and Krishshan (1991), Fishman and Hagerty (1989, 1992), Subrahmanyam (1991a, 199Subrahmanyam (1992), Chow
16、dhry and Nanda (1991), Paul (1991), and Kumar a1991). For a discussion of regulatory issues based on the Kyle (1984, 1965) pa(1989) and Lindsey (1990).2 This is exactly the “liquidity” motive of the single trader in Glosten (1989). Hedgtrading motive of the uninformed “liquidity” traders in Grossman and Millers (1988does not allow for asymmetric information.3See, for example, New York Stock Exchange (1990), p. 13.308With the above observations in mind, we replace the noise
