Is Kyle's equilibrium model stable?
Trading and Market Microstructure
2023-07-27 v2
Abstract
In the dynamic discrete-time trading setting of Kyle (1985), we prove that Kyle's equilibrium model is stable when there are one or two trading times. For three or more trading times, we prove that Kyle's equilibrium is not stable. These theoretical results are proven to hold irrespectively of all Kyle's input parameters.
Cite
@article{arxiv.2307.09392,
title = {Is Kyle's equilibrium model stable?},
author = {Umut Cetin and Kasper Larsen},
journal= {arXiv preprint arXiv:2307.09392},
year = {2023}
}