FEEDBACK EFFECT AND THE DESIGN OF FINANCIAL MARKETS

2 PM, Seminar room, Department of Economics and Management, via Inama 5

Speaker

• Giovanni Puopolo, University of Naples Federico II

Abstract

We propose a multi-market model featuring strategic trading behavior and feedback effect to study price informativeness and investment decision. In our setting, informed players (speculators) strategically choose portfolio across markets to trade at more favourable prices, whereas uninformed players (manager and market makers) may want to observe multiple markets to guide decisions. We find that speculators may give raise to asymmetric trading, more precisely, to cross-market manipulation and limits to arbitrage. We also find a trade-off between price informativeness and investment efficiency, depending on the ability of uninformed players to gather information across markets.