trader and exchange

trader and exchange - When value change, price don't. news...

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When value change, price don’t… news trader profit When price change, value not… informed trader profit Value motivated trader. . provide liquidity to everyone and dealer SPREAD Dealer spread… dealer bid and offer Market spread… best bid and best offer Inside spread… equal market spread Outside spread… not transparent which value motivated trader are wiling to buy and sell OUTSIDE SPREAD Spread for value motivated trader is wide…because research and large block trade Also, they may also make mistake. . danger to lose money Winner’s curse…you win something but you wish that not happen Action. . win the action but found out pay to much Make a mistake to buy it when they over-value the item How to prevent? Assume I would make a mistake. . estimate the value… adjust if I win the action. . everybody reservation price is lower than mine. . should adjust and lower my bid… but by how much? Depends on how many people biding? Bring it way down or a little bit? The more people you compete with, the more I lower the bid. Assume I will win the action. The more uncertain. . the magnitude of mistake is bigger. CAN NOT COMPETE WITH PEOPLE WHO WILING TO LOSE MONEY Value motivated trader. . when buying when no one want to… think that the value is lower to price Subject to winner curse. . deal with this with wide spread They know they will make a mistake and lose to informed trader… widen spread SEC news about investing outside US Difficulty: Retail trader> local broker (online)> London broker> buy Chairman Chris Cox: may be want the US investors to have a more international view. . give investor an opportunity to go abroad. . when make easier to go abroad… of course need to make easier to let others come Fisher lato(spelling): NYSE: say things opposite than three years ago when they want to acquire another exchange Paul: want to get rid of regulation
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MIDTERM: Wriiten….difficult…. ..4 essays… two paragraphs….practice telling story….indentify relationship Ex. Why do dealer need to manage inventory? Why should the bidder of the action need to care about winner curse? Review Session for midterm 2 What make good market? Decide for yourself whether should do Produce liquidity, produce informative price which good for economy Anyone have problem liquidity, appreciate market Informative price is useful for economy. . help allocate capital Make it difficult for bad project to raise money, easy for good project to raise money When price is too low. . you don’t want someone to buy the firm and kick out the management Ex. In your opinion, what should market do? Give me some justification, what should market do? Informed trader: Four types: News, value move from price, trade on news Value motivated, other make mistake, trade on all information of fundamental Arbitrageur, trade on relative value Technical, trade on trend Market can not be totally efficient, if so, informed trader can not make money. Price can not be totally informative, if so, informed trader can not make money
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trader and exchange - When value change, price don't. news...

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