Strategic Trading around Anticipated Supply/Demand Shocks

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Strategic Trading around Anticipated Supply/Demand Shocks

NRU HSE , 2022. No. WP9/2022/02.

I study the price/quantity effects of anticipated supply or demand shocks in a model of strategic trading, where imperfectly competitive traders share risk with price-takers. When there are at least two traders, anticipated shocks lead to the V-shaped pattern observed empirically: prices drift away from fundamentals before the shock, and slowly revert afterwards. How traders behave before the shock depends on whether they compete `a la Cournot (i.e. submit market orders) or in demand schedules (using limit orders). Consistent with empirical evidence, Cournot traders act as contrarians, while demand schedule traders first trade against, then with the shock.

Language: English

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Asymmetric thin markets

Fardeau V., Journal of Financial Economics 2026 No. 183 Article 104319

Using a new equilibrium representation, I characterize dynamic, nonstationary risk sharing in a complete-information setting among strategic traders submitting demand schedules and heterogeneous in risk aversion. In equilibrium, more risk-averse (smaller) traders diversify more aggressively due to endogenously lower price impact. This creates term structure effects, where smaller traders dynamically hedge the persistent order flow ...

Added: September 29, 2026

Sequential Entry in Illiquid Markets

Fardeau V., Journal of Financial Markets 2023 Vol. 64 Article 100818

I study the sequential entry of intermediaries into an illiquid market. As intermediaries trade with rational counterparts, market depth affects and is affected by the possibility of entry. This feedback loop between entry and depth gives incumbent intermediaries more incentives to deter entrants, creating endogenous barriers to entry. Further, whether entry occurs or not in ...

Added: November 30, 2022

Sequential Entry in Illiquid Markets

Fardeau V., / NRU HSE. Series WP9 "Серия WP9 «Исследования по экономике и финансам»". 2022. No. WP9/2022/03.

Added: June 17, 2022

Arbitrage with Financial Constraints and Market Power

Fardeau V., / NRU HSE. Series WP9 "Серия WP9 «Исследования по экономике и финансам»". 2022. No. WP9/2022/01.

I study how (VaR-based) financial constraints affect liquidity and welfare under different structures of the arbitrage industry. When capital is spread across numerous competitive arbitrageurs, financial constraints may impair their ability to provide liquidity, lowering other investors’ welfare. However, when capital is concentrated among arbitrageurs with market power, introducing constraints can make everyone better off ...

Added: June 17, 2022

Strategic Trading in Informationally Complex Environments

Lambert N., Ostrovsky M., Panov M., Econometrica 2018 Vol. 86 No. 4 P. 1119–1157

We study trading behavior and the properties of prices in informationally complex markets. Our model is based on the single-period version of the linear-normal framework of Kyle (1985). We allow for essentially arbitrary correlations among the random variables involved in the model: the value of the traded asset, the signals of strategic traders and competitive market makers, and the ...

Added: June 1, 2020

Mathematical Models of Price Impact and Optimal Portfolio Management in Illiquid Markets

Andreev N. A., , in: Financial Econometrics and Empirical Market Microstructure.: NY: Springer, 2015.

The problem of optimal portfolio liquidation under transaction costs has been widely researched recently, thus producing several approaches to problem formulation and solving. Obtained results can be used for decision making during portfolio selection or automatic trading at high-frequency electronic markets. This work gives a review of modern studies in this field, comparing models and ...

Added: October 21, 2013