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Ryosuke Ishii
''Evolutionary Sequential Trading''
( 2010, Vol. 30 No.1 )
This paper analyzes an Easley and O'Hara (1992) type sequential trading model in an evolutionary setting. We assume that the memory of a market maker is limited, and that traders endogenously choose whether to acquire private information with a fixed cost. We show that the ratio of the informed traders is proportional to the width of the bid ask spread, and that the price converges to the strong-form efficient level exponentially.
Keywords: Market microstructure; Information asymmetry; Bayesian learning; Bid-ask spread; Evolutionary game theory
JEL: D4 - Market Structure and Pricing: General
Manuscript Received : Jul 26 2009 Manuscript Accepted : Jan 13 2010

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