Trading constraints in continuous-time Kyle models
Jin Hyuk Choi, Heeyoung Kwon, Kasper Larsen
TL;DR
This paper establishes the existence of an equilibrium in a continuous-time Kyle model with trading constraints and demonstrates that the model replicates key empirical stylized facts like autocorrelation, decreasing price impact, and U-shaped trading patterns.
Contribution
It proves the global existence of equilibrium in a Kyle model with terminal trading constraints and links the model's output to observed market behaviors.
Findings
Equilibrium exists under trading constraints.
Model reproduces autocorrelated holdings.
Price impact decreases over the trading day.
Abstract
In a continuous-time Kyle setting, we prove global existence of an equilibrium when the insider faces a terminal trading constraint. We prove that our equilibrium model produces output consistent with several empirical stylized facts such as autocorrelated aggregate holdings, decreasing price impacts over the trading day, and U shaped optimal trading patterns.
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Taxonomy
TopicsFinancial Markets and Investment Strategies · Economic theories and models · Stochastic processes and financial applications