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How and when is dual trading irrelevant?

Bernhardt, D.; Taub, B.

Authors

D. Bernhardt

B. Taub



Abstract

Within a general model of speculative trade, we derive the aggregate consequences of dual traders who process retail liquidity trades and trade on their own account. We prove that dual trading reduces total expected speculator profits unless speculators process all liquidity trade and trade with the same intensity on liquidity trade. In contrast, dual trading does not affect the information content of prices. We show how results generalize when we endogenize (a) speculator information via costly information acquisition about fundamentals or costly processing of liquidity trade, and (b) liquidity trader motives and welfare via endowment shocks.

Citation

Bernhardt, D., & Taub, B. (2011). How and when is dual trading irrelevant?. Journal of Financial Markets, 13(2), 295-320. https://doi.org/10.1016/j.finmar.2010.01.001

Journal Article Type Article
Publication Date May 1, 2011
Deposit Date Jul 20, 2011
Journal Journal of Financial Markets
Print ISSN 1386-4181
Electronic ISSN 1878-576X
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 13
Issue 2
Pages 295-320
DOI https://doi.org/10.1016/j.finmar.2010.01.001
Keywords Market microstructure finance, Dual trading, Informed speculators, Liquidity trade, Private information, Cauchy–Schwarz inequality.
Public URL https://durham-repository.worktribe.com/output/1507181


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