The Trading Decision and Market Clearing under Transaction Price Uncertainty

  • Author(s): THOMAS S. Y. HO, ROBERT A. SCHWARTZ, DAVID K. WHITCOMB
  • Published: Apr 30, 2012
  • Pages: 21-42
  • DOI: 10.1111/j.1540-6261.1985.tb04935.x

ABSTRACT

This paper models an individual's trading decision, given: (1) his/her demand function to hold shares of an asset, (2) his/her expectation on what the market clearing price will be, and (3) the design of the market which determines how orders will be translated into trades. The particular market design we consider is the batched trading (periodic call) regime. Assuming investors are distributed according to their propensities to hold shares, we model the aggregation of orders to obtain market clearing values of price and volume and to show the way in which, with trading friction, these solutions differ from Pareto efficient values. The importance of this analysis for various issues concerning market design is noted.

Jump to menu

Main Navigation

Search the Site / Journal

Search Keywords

Search Tips

Members' Login

Credentials

Members' Options

Site Footer

View Mobile Version