Call Auction Markets with Risk-Averse Specialists英文文献资料.docVIP

Theoretical Economics Letters, 2012, 2, 175-179 /10.4236/tel.2012.22030 Published Online May 2012 (http://www.SciRP.org/journal/tel) Call Auction Markets with Risk-Averse Specialists Paolo Vitale Department of Economics, University of Pescara, Viale Pindaro, Italy Email: p.vitale@unich.it Received December 28, 2011; revised January 30, 2012; accepted February 10, 2012 ABSTRACT We study a generalization of Kyle’s (1985) model to the case in which the specialist is risk-averse and does not set the transaction price according to semi-strong form efficiency. We see that Kyle’s call auction market is no longer a robust market structure, as linear Bayesian equilibria do not exist, irrespective of fundamentals, such as agents’ information, endowments and preferences. This result holds both when customers can submit only market orders and when limit orders are allowed too. Keywords: Risk-Aversion; Call Auction Markets; Linear Bayesian Equilibria 1. Introduction lation of Kyle’s model, in period 0 a call auction is run, while in period 1 the liquidation value of the risky asset is publicly announced. In auction markets, such as the NYSE, specialists fix transaction prices after customers have filed their orders. In Pete Kyle’s formulation of a call auction market [1], these agents represent passive agents who set transaction prices according to semi-strong efficiency condition. In this way it is possible to identify linear equilibria and study the characteristics of the market. However, spe- cialists on the NYSE are not mere executors of clients’ orders. Their behavior, as indicated by several empirical studies [2], is active and influenced by risk management considerations. In particular, there is evidence that they are risk-averse, as they set transaction prices to control their inventories and risk exposure. We show that when specialists are risk-averse the sim- ple linear equilibria of Kyle’