Financial Markets, Prices and Information


  • In this course we apply game theory techniques to the analysis of informational issues in financial markets. The concept of Nash equilibrium under asymmetric information will be presented in the specific context of the activity of rational agents in financial markets. We will see how private information is transmitted through prices, strategic traders balance the trade-off between information revelation and speculative profits, and how the market structure conditions the price formation process.


  • Brunnermeier, M.K., (1999) – Prices, Price Processes, Volume and Their Information: A Survey of the Market Microstructure Literature, Oxford University Press, Oxford.
  • Huang, C.F. and R. Litzenberger, (1988) – Foundation for Financial Economics, Prentice Hall, New York.
  • O’Hara, M., (1995) – Market Microstructure Theory, Blackwell, Oxford.
  • Rasmusen, E., (1994) – Games and Information, Blackwell, Oxford.


  • Instruments and Preliminary Concepts: CARA Preferences, Demand Signal Extractions for Risky Assets, Nash Equilibrium under Asymmetric Information.
  • Rational Expectations and Informative Prices: “Myopic” Equilibrium under Asymmetric Information, Rational Expectations Equilibria (existence, identification and characteristics).
  • Noisy Rational Expectations Equilibria (NREE): Definition and Properties, NREE with Identical Investors and Independent Signals, NREE with Informed and Uninformed Investors.
  • Markets for Information: The Private Value of Information, The Acquisition of Information, The Sale of Information (identical and individual signals).
  • Strategic Behavior in Financial Markets: REE with Imperfect Competition under Symmetric and Asymmetric Information, Informational Monopoly with Competitive Outsiders, Risk-neutrality and Information Monopoly.
  • Dynamic Trading in Financial Markets (Part I): Dynamic REE and Technical Analysis, Sequential Trader Models.
  • Dynamic Trading in Financial Markets (Part II): Strategic Trader Models (static and dynamic Kyle’s model).
  • Noise and Liquidity Traders in Financial Markets: Discretionary Liquidity Trading, Price Volatility and Trading Volume, Speculative Noise Trading and Price Manipulation, Manipulation with Symmetric Liquidity Trading.


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