A Characterization of the Distributions That Imply Existence of Linear Equilibria in the Kyle-Model

The existence of a linear equilibrium in Kyle's model of market making with multiple, symmetrically informed strategic traders is implied for any number of strategic traders if the joint distribution of the underlying exogenous random variables is elliptical. The reverse implication has been shown for the case in which the random variables are independent and have finite second moments. Here we extend this result to the case in which the underlying random variables are not necessarily independent and their joint distribution is determined by its moments

Stable marriages and search frictions

Stable matchings are the primary solution concept for two-sided matching markets with nontransferable utility. We investigate the strategic foundations of stability in a decentralized matching market. Towards this end, we embed the standard marriage markets in a search model with random meetings. We study the limit of steady-state equilibria as exogenous frictions vanish. The main result is that convergence of equilibrium matchings to stable matchings is guaranteed if and only if there is a unique stable matching in the underlying marriage market. Whenever there are multiple stable matchings, sequences of equilibrium matchings converging to unstable, inefficient matchings can be constructed. Thus, vanishing frictions do not guarantee the stability and efficiency of decentralized marriage markets

Matching Heterogeneous Agents with a Linear Search Technology

Steady state equilibria in heterogeneous agent matching models with search frictions have been shown to exist in Shimer and Smith (2000) under the assumption of a quadratic search technology. We extend their analysis to the commonly investigated linear search technology.Search, Matching, Steady State Equilibrium

On the Existence of Linear Equilibria in the Rochet-Vila Model of Market Making

This paper derives necessary and sucient conditions for the existence of linear equilibria in the Rochet-Vila model of market making. In contrast to most previous work on the existence of linear equilibria in models of market making, we do not impose independence of the underlying random variables. For distributions that are determined by their moments we show that a linear equilibrium exists if and only if the joint distribution of noise trade and asset payoff is elliptical.Market Microstructure, Market Making, Linear Equilibria

A Characterization of the Distributions That Imply Existence of Linear Equilibria in the Kyle-Model

The existence of a linear equilibrium in Kyle's model of market making with multiple, symmetrically informed strategic traders is implied for any number of strategic traders if the joint distribution of the underlying exogenous random variables is elliptical. The reverse implication has been shown for the case in which the random variables are independent and have finite second moments. Here we extend this result to the case in which the underlying random variables are not necessarily independent and their joint distribution is determined by its moments.Market Microstructure; Kyle Model; Linear

Existence of Linear Equilibria in the Kyle Model with Multiple Informed Traders

We consider Kyle's market order model of insider trading with multiple informed traders and show: if a linear equilibrium exists for two different numbers of informed traders, asset payoff and noise trading are independent and have finite second moments, then these random variables are normally distributed.insider trading; Kyle model; linear equilibrium; normal distribution

A Characterization of the Distributions That Imply Existence of Linear Equilbria in the Kyle-Model

The existence of a linear equilibrium in Kyle's model of market making with multiple, symmetrically informed strategic traders is implied for any number of strategic traders if the joint distribution of the underlying exogenous random variables is elliptical. The reverse implication has been shown for the case in which the random variables are independent and have finite second moments. Here we extend this result to the case in which the underlying random variables are not necessarily independent and their joint distribution is determined by its moments.Market Microstructure, Kyle Model, Linear Equilibria, Elliptical Distributions

Extreme Adverse Selection, Competitive Pricing, and Market Breakdown

Extreme adverse selection arises when private information has unbounded support, and market breakdown occurs when no trade is the only equilibrium outcome. We study extreme adverse selection via the limit behavior of a financial market as the support of private information converges to an unbounded support. A necessary and sufficient condition for market breakdown is obtained. If the condition fails, then there exists competitive market behavior that converges to positive levels of trade whenever it is first best to have trade. When the condition fails, no feasible (competitive or not) market behavior converges to positive levels of trade.Adverse selection, market breakdown, separation, competitive pricing

The Implementation Duality

We use the theory of abstract convexity to study adverse-selection principal-agent problems and two-sided matching problems, departing from much of the literature by not requiring quasilinear utility. We formulate and characterize a basic underlying implementation duality. We show how this duality can be used to obtain a sharpening of the taxation principle, to obtain a general existence result for solutions to the principal-agent problem, to show that (just as in the quasilinear case) all increasing decision functions are implementable under a single crossing condition, and to obtain an existence result for stable outcomes featuring positive assortative matching in a matching model