Toulouse School of Economics (CNRS, IDEI)
Manufacture des Tabacs
21, allée de Brienne
Tel: fax 33/0561-128637
Information about this author at RePEc
NBER Working Papers and Publications
|December 2010||Trading and Liquidity with Limited Cognition|
with Johan Hombert, Pierre-Olivier Weill: w16628
We study the reaction of financial markets to aggregate liquidity shocks when traders face cognition limits. While each financial institution recovers from the shock at a random time, the trader representing the institution observes this recovery with a delay reflecting the time it takes to collect and process information about positions, counterparties and risk exposure. Cognition limits lengthen the market price recovery. They also imply that traders who find that their institution has not yet recovered from the shock place market sell orders, and then progressively buy back at relatively low prices, while simultaneously placing limit orders to sell later when the price will have recovered. This generates round trip trades, which raise trading volume. We compare the case where algorithms...
Published: "Equilibrium Pricing and Volume under Preference Uncertainty" with Bruno Biais and Johan Hombert. Review of Economic Studies, Volume 81, Issue 4, Pp. 1401-1437.
|May 2009||Liquidity Shocks and Order Book Dynamics|
with Pierre-Olivier Weill: w15009
We propose a dynamic competitive equilibrium model of limit order trading, based on the premise that investors cannot monitor markets continuously. We study how limit order markets absorb transient liquidity shocks, which occur when a significant fraction of investors lose their willingness and ability to hold assets. We characterize the equilibrium dynamics of market prices, bid-ask spreads, order submissions and cancelations, as well as the volume and limit order book depth they generate.