Topic: Smooth Liquidity Trading, Super Impatient Insider, and Price Spikes
Speaker: Ming Guo, Assistant Professor of Finance, Shanghai Advanced Institute of Finance (SAIF)
Date: April 16th, 2014 (Wed.)
Time: 1:00-2:30pm
Location: Building 4, Room 101
Language: English
Abstract:
We present an in nite-horizon insider trading model in which the order ow of liquidity traders is a linear function of the time interval and contains persistent and transient components. Price impact depends on the order ow rate. Although the risk-neutral insider is super impatient, the asset price is not fully revealing, even in the continuous-time limit. When the time interval is short, following a negative persistent liquidity shock, the price either rises or drops (like a negative spike) rapidly and then rises. The duration of the rst phase is roughly proportional to the time interval. Price spikes are more likely to occur when the amount of the transient component of liquidity trading is large, private fundamental information is long-term oriented, and persistent liquidity orders are executed quickly, wherein insider trading destabilizes the price and thus makes it less resilient.
About the speaker:
Dr. Ming Guo is an Assistant Professor of Finance at Shanghai Advanced Institute of Finance (SAIF). Dr. Guo received his Ph.D. in Economics from Duke University in 2005 and his M.S. in Economics from CCER of Peking University in 2000. Dr. Guo’s current research interests focus on determinant of market liquidity, information asymmetry, option pricing, effects of transaction costs and tax, dynamic portfolio allocation and futures markets. His research has been published in several domestic and foreign academic journals, such as Journal of Banking & Finance, Journal of Economic Theory and South China Journal of Economy.
