Heterogeneous Information and Equilibrium Pricing

Different traders trade for different purpose and behave dissimilarly because of the information asymmetry in financial market. Considering the time of receiving information and precision of information content are heterogeneous among different informed traders, this paper establishes a two-period strategic gamble model under the condition of heterogeneous information, to examine the trading patterns and equilibrium pricing behavior. It proved that there existed a linear equilibrium when some special condition is satisfied and gave the analytical form of equilibrium price and the order submission strategy of different traders. Furthermore, it solved the equilibrium numerically and showed that heterogeneous information would lead traders to exploit their private information gradually in order to obtain maximum expected profit.