High Speed of Learning in Financial Markets

We analyze the role of liquidity and collection of information in order to measure the speed of revelation of information during the preopening of order-driven markets. We extend Vives (1995) model to the case where risk averse traders receive a new private signal before each round of quotation of the preopening. We show that price discovery takes place at high speed which is consistent with the empirical studies of Biais, Hillion and Spatt (1999)

Incentive-compatible contracts for the sale information

An informed financial institution can trade on private information and also sell it to clients through a managed fund. To provide an incentive for the informed agent to trade in the interest of her client, the optimal contract requires that she be compensated as an increasing function of the profits of the fund. The optimal contract is also designed to limit the aggressiveness of the sum of the fund's trade and the proprieatary trade. This reduces information revelation and thes leads to greater overall trading profits than if the informed agent only conducted proprietary trades

Collusion in Board of Directors

There is a large literature on the composition of the boards as well as the monitoring role and the advisory role of the boards. Nevertheless, the problem of collusion between the CEO and the board has receive little attention. The aim of this paper is to study collusive aspects of the board of directors. Our paper sheds light on the problem of composition of the board of directors. We study what is the optimal composition of the board of directors in particular if it is preferable to have a insider-oriented board or a outsider-oriented board with a majority of independent directors. We consider that a board of independent directors that are all chosen directly by the CEO is a friendly board if the independent directors follow the decision of the CEO. We study the case of collusion considering a CEO facing a choice of projects.We propose a model where we have di¤erent projects each with a certain level of risk. The choice of the best project for the company is function of remuneration of the CEO as well as the private benefits of the CEO

Collusion in board of directors

The aim of this paper is to study what is the best structure of a Board of Directors when collusive aspects between the Board and the CEO are taken into account. We analyze how shareholders should select the members of the Board in a framework with asymmetric information and uncertainty about the optimal projects for the firm. In particular, we examine the optimal degree of independence of the Board from a shareholders perspective. This allows us to state when it is beneficial for shareholders to have an insider-oriented board or an outsider oriented board with a majority of independent directors when collusion is a major threat.Collusion, Corporate Governance, Asymmetric Information, Uncertainty

Noise and Competition in Strategic Oligopoly

Focusing on homogeneous beliefs, we can distinguish two commonly shared ideas that, i) the competition between informed traders destroys their trading profits, ii) trading with a noisy signal brings about a loss in the expected profits. So far, it has been proved in the latter framework, that when N strategic and perfectly informed traders compete in the financial market, i) the informativeness of prices increases with the degree of competition and, ii) the aggregate and individual profits go to 0 when N is large. In this paper, we propose a general study where N strategic informaed agents have heterogeneous beliefs, i.e. are endowed with noisy information and compete à la Nash. We prove the existence and uniqueness of a linear equilibrium generalizing Kyle (1985) results to the case of N informed traders when the insiders have heterogeneous beliefs. In this general framework, we derive the following striking results: for certain regions of noise and numbers of competitors in excess of four, i) each individual expected profit is greater than the one obtained in the perfectly informed (and homogeneous beliefs) case; ii) the aggregate profit has a finite (strictly) positive limit when N is large. iii) Even when an infinite number of insiders compete in the market, the price is no longer efficient and does not fully reveal the final liquidation value of the risky asset. iv) In the particular case where each informed agent is endowed with a signal the precision of which is the same, a) we show that there exists an optimal level of noise for which each individual expected profit is maximized; b) we show that there exists an optimal size of the market for which the aggregate expectged profit is maximized; c) the liquidity is an increasing function of the number of informed traders but has a finite limit for large N; d) the informativeness of prices is a decreasing function of the number of informed traders.Competition, optimal noise, price manipulation

When overconfident traders meet feedback traders

In this paper, we develop a model in which overconfident market participants and rational speculators trade against trend-chasers. We exhibit the unique linear equilibrium and assess the quality of prices according to the proportion of the different types of agents. We highlight how speculative bubbles arise when a large number of traders adopt a trend-chasing behavior. We show that overconfident traders can obtain positive expected profits. In particular, over-confident traders can outperform rational traders. The positive feedback trading enhances the negative correlation between the back-to-back prices changes and the volatility of prices as well. We show that positive feedback traders destabilize prices more than their overconfident opponents. Generally, overconfidence increases the volatility of prices and worsens the market efficiency. But, we show that in the presence of positive feedback trading, overconfidence improves the market efficiency and dampens the excess volatility

On the continuous resonant equation for NLS: II. Statistical study

We consider the continuous resonant (CR) system of the 2D cubic nonlinear Schr{\"o}dinger (NLS) equation. This system arises in numerous instances as an effective equation for the long-time dynamics of NLS in confined regimes (e.g. on a compact domain or with a trapping potential). The system was derived and studied from a deterministic viewpoint in several earlier works, which uncovered many of its striking properties. This manuscript is devoted to a probabilistic study of this system. Most notably, we construct global solutions in negative Sobolev spaces, which leave Gibbs and white noise measures invariant. Invariance of white noise measure seems particularly interesting in view of the absence of similar results for NLS.Comment: 23 page

Strategic Noise in Competitive Markets for the Sale of Information.

This paper shows how informed financial intermediaries can reduce their trading competition by designing optimal incentive compatible contracts for the sale of information. With fund management contracts – indirect sale of information – banks can credibly commit to collaborate and add noise into prices. This is a way to circumvent the Grossman and Stiglitz (1980) paradox: when information is costly, by commiting to add noise, the banks can recover the cost of collecting information and enter the market. By contrast, when information is costless, even with a large number of sellers of information entering the market prices are not fully informative

Noise and competition in strategic oligopoly

In this paper, we propose a model where N strategic informed traders who are endowed with heterogeneous noisy signals with different precisions compete in a market with a single risky asset. We explicitly describe the unique linear equilibrium that exists in this setup and derive its properties. Moreover, we focus on the effects of noise on the competition between traders. We show that noise softens the competition between traders. In particular, for N exceeding three and for certain sets of noise in traders' signals, each trader's individual profit is greater than the one obtained in the case of perfect information