Journal of Financial Intermediation Vol. 3 No. 2 1994
On the Equivalence of Noise Trader and Hedger Models in Market Microstructure
Abstract
It is shown that the models of Spiegel and Subrahmanyam (1992, Rev. Finan. Stud.5(2), 307–329) and Kyle (1985, Econometrica53, 1315–1335) are equivalent in the following sense: the equilibrium values of market depth, the expected total trading volume and the expected price level are the same in the two models. Equivalence exists whenever the uniformed traders hedge all of their endowments of risky shares. This occurs under two sets of parameter configurations. In both cases, the linear equilibrium in the hedger model always exists. Journal of Economic Literature Classification Numbers; G12, G14, D82.
- DOI
- 10.1006/jfin.1994.1004
- Volume
- 3
- Issue
- 2
- Pages
- 204-212
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref