Economics, Econometrics and Finance
4 years ago

Investors' imperfect information impacts market liquidity and price dynamics significantly.

How Does Learning Affect Market Liquidity? A Simulation Analysis of a Double-Auction Financial Market with Portfolio Traders
Andrea Consiglio, Annalisa Russino

Paper Summary

The article explores how learning impacts market liquidity in a simulated financial market. Investors with limited resources trade assets based on imperfect information about returns. They aim to grow their portfolios to reach specific targets, with a focus on avoiding losses. The study shows that the way investors learn affects price changes by influencing market liquidity variability.

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