The Strategic Specialist and Imperfect Competition in a Limit Order Market

Posted: 16 Jan 2010 Last revised: 20 Jan 2010

Date Written: January 14, 2010

Abstract

The empirical literature suggests that the limit order book contains information that might be used by the specialist to his own advantage. I develop a model where there is a strategic specialist who competes against a limit order book and has information about supply. The presence of a strategic specialist in an imperfectly competitive limit order book market induces non-monotonicity of market indicators with respect to the variance of liquidation value. Moreover, the existence of private information about supply significantly affects market performance as it induces, among other effects, lower market liquidity. Finally, this model suggests another link between Kyle’s (1985, 1989) models and Glosten and Milgrom’s (1985) model by allowing for strategic behaviour of the specialist.

Keywords: Strategic Specialist, Imperfect Competition, Market Liquidity

JEL Classification: D82, G12, G14

Suggested Citation

Dumitrescu, Ariadna, The Strategic Specialist and Imperfect Competition in a Limit Order Market (January 14, 2010). Journal of Banking and Finance, Vol. 34, No. 1, 2010. Available at SSRN: https://ssrn.com/abstract=1536522

Ariadna Dumitrescu (Contact Author)

ESADE Business School ( email )

Av. Pedralbes 60-62
Barcelona, 08034
Spain

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
318
PlumX Metrics