Essays in Financial Economics

dc.contributor.advisorKyle, Albert Sen_US
dc.contributor.authorZhou, Weien_US
dc.contributor.departmentBusiness and Management: Financeen_US
dc.contributor.publisherDigital Repository at the University of Marylanden_US
dc.contributor.publisherUniversity of Maryland (College Park, Md.)en_US
dc.date.accessioned2022-09-16T05:32:55Z
dc.date.available2022-09-16T05:32:55Z
dc.date.issued2022en_US
dc.description.abstractThis dissertation contains two essays in market microstructure and institutional asset management. The first essay studies a dynamic model of strategic trading where the parameters of temporary price impact (how price depends on a trader's current rate of trading) and permanent price impact (how price depends on the cumulative quantity traded over time) are endogenous and time-varying. A monopolistic informed speculator trades with oligopolistic uninformed speculators. They agree to disagree about the precision of the informed speculator's private Gaussian information flow. In the interval-trading Nash equilibrium with linear Markov strategies, trade starts if the disagreement is high enough and stops when the decaying alpha becomes insufficient to generate further trading benefits. Equilibrium permanent price impact parameters encapsulate the counteracting effects of descending residual uncertainty and diminishing trading opportunities. Equilibrium temporary price impact parameters capture traders' inter-temporal trade-offs between the benefits of learning and trading. The second essay was motivated by the observation that active institutional investors anticipate potential unwinding costs when accumulating positions. In this essay, I develop a dynamic model to study how strategic traders' accumulation and unwinding motives interact and evolve when facing a decaying profit opportunity. The unwinding pressures come from quadratic (regulatory) holding costs and price impacts of competitors' trades. The model shows that (i) with unwinding pressures, traders are reluctant to exploit persistent opportunities and profit most from those with an intermediate decaying rate; (ii) competition alleviates the unwinding pressure from holding costs but strengthens that from competitors' price impacts; and (iii) with increased regulatory costs, traders' most profitable opportunities shift to more transient ones.en_US
dc.identifierhttps://doi.org/10.13016/3gqt-tmeh
dc.identifier.urihttp://hdl.handle.net/1903/29139
dc.language.isoenen_US
dc.subject.pqcontrolledFinanceen_US
dc.subject.pquncontrolledinstitutional asset managementen_US
dc.subject.pquncontrolledmarket liquidityen_US
dc.subject.pquncontrolledprice impacten_US
dc.subject.pquncontrolledstrategic tradingen_US
dc.titleEssays in Financial Economicsen_US
dc.typeDissertationen_US

Files

Original bundle

Now showing 1 - 1 of 1
Loading...
Thumbnail Image
Name:
Zhou_umd_0117E_22590.pdf
Size:
3.32 MB
Format:
Adobe Portable Document Format