Qiu, Zhigang, Wang, Yanyi and Zhang, Shunming (2023) Market power, ambiguity, and market participation. Journal of Financial Markets, 62. p. 100761. ISSN 1386-4181
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Abstract
We investigate how market power or price impact of market makers affects the participation
decisions of investors with ambiguity aversion. Limited participation exists because some
investors are ambiguous about the asset fundamental, but the market power of market makers
mitigates limited participation. As a result, when market makers become less competitive,
the non-participation range decreases, while return volatility increases; thus, market makers
and ambiguity-averse investors are better off, but investors with liquidity needs are worse
off. However, the non-participation range and uninformed investors’ welfare can increase or
decrease when information is more asymmetric, depending on the importance of liquidity
demand.
Item Type: | Article |
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Keywords: | Price impact; Imperfect competition; Limited participation; Nash equilibrium; Ambiguity aversion; |
Academic Unit: | Faculty of Social Sciences > School of Business |
Item ID: | 20656 |
Identification Number: | 10.1016/j.finmar.2022.100761 |
Depositing User: | Yanyi Wang |
Date Deposited: | 08 Oct 2025 09:27 |
Journal or Publication Title: | Journal of Financial Markets |
Publisher: | Elsevier |
Refereed: | Yes |
Related URLs: | |
URI: | https://mural.maynoothuniversity.ie/id/eprint/20656 |
Use Licence: | This item is available under a Creative Commons Attribution Non Commercial Share Alike Licence (CC BY-NC-SA). Details of this licence are available here |
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