Is Kyle’s equilibrium model stable?

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2024年5月24日

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Umut Çetin,
Kasper Larsen

摘要

In the dynamic discrete-time trading setting of Kyle (Econometrica 53:1315–1336, 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.