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on Market Microstructure |
| By: | Angrisani, Marco; Cipriani, Marco; De Filippis, Roberta; Guarino, Antonio; Kendall, Ryan |
| Abstract: | We study the behavior of professional traders in an experiment in which, endowed with private information, they trade an asset over multiple periods. Professional traders do not produce the price bubbles observed with student subjects and aggregate private information better; bubbles also do not arise in mixed markets with traders and students trading together. Professional traders exhibit higher strategic sophistication than students as measured by their Guessing Game choices. We link strategic sophistication to trading in the financial market, and show that traders with higher levels of strategic sophistication earn higher capital gains and trading profits. |
| Keywords: | Experiment; Bubbles; professional traders; strategic sophistication; Information aggregation; Informational efficiency |
| JEL: | C93 G11 G14 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20456 |
| By: | Luo, Patrick; Ravina, Enrichetta; Sammon, Marco; Viceira, Luis |
| Abstract: | Using a large and representative panel of U.S. brokerage accounts, we show that retail investors trade as contrarians after large earnings surprises, especially for loser stocks, and that such contrarian trading contributes to price momentum and post earnings announcement drift (PEAD). We show that extreme return streaks and surprises are not enough for stocks to exhibit PEAD and momentum and that the intensity of contrarian retail trading plays a key role: the PEAD of loser stocks with bad earnings surprises becomes increasingly more negative as retail buying pressure increases, and he PEAD of the stocks with the highest past returns and largest earnings surprises is the most positive for the stocks with the biggest net retail outflow. Finer sorts confirm the results, as do sorts by firm size and institutional ownership level. Younger and more attentive individuals are more likely to be contrarian, and a firm’s dividend yield, leverage, size, book to market, and analyst coverage are associated with the fraction of contrarian trades they face around earnings announcements. The disposition effect and stale limit orders, while present in our sample, do not explain our results. Our findings are consistent with investors’ conservatism, sticky beliefs, and cognitive uncertainty, as well as an incorrect belief in the Law of Small Numbers. |
| Keywords: | Retail investors; Momentum; Conservatism |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20487 |
| By: | Ibrahim Ekren; Evangelos A. Nikitopoulos; Lu Vy |
| Abstract: | We develop a variational formulation of Kyle's model of informed trading that accommodates stochastic liquidity and multiple traded assets. The main equilibrium result is stated first: under a martingale dual condition, a matrix-valued martingale depth process generates a linear-Gaussian equilibrium with stochastic matrix-valued price impact. We derive this martingale from a primal-dual problem, inspired by causal optimal transport, that characterizes the endogenous speed at which the insider injects private information into prices; in general, this problem admits only local martingale optimizers, and the martingale dual condition is the hypothesis that the optimizer is a true martingale. We interpret informed trading as the optimal liquidation of private information and verify the construction in the scalar and common-eigenbasis cases. The fully general matrix-valued case reduces to a coupled matrix FBSDE, which we isolate as the remaining obstruction. Along the way, we establish an independently interesting Doob-Meyer decomposition for general (not necessarily symmetric) matrix-valued submartingales. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2607.10934 |