Pre-Report of Trading Game
Added on 2021-06-14
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Running head: PRE-REPORT OF TRADING GAME1Pre-Report of Trading GameNameInstitution
PRE-REPORT OF TRADING GAME2Pre-Report of Trading GamePart IAs per the information asymmetry, the traders in this market were categorized into two groups; liquidity and informed. The liquidity traders had no access to achieveinformation. The key reason or goal behind this was to reduce the transaction cost by getting rid of the liquidity constraints. If not, the liquidity traders would experience penalties. The informed traders had access to private information before the start of the trade. The main objective of this was the utilization of the information with the attempt of maximizing profits. Informed traders are profit-motivated and thus they could only purchase for the shares when their values go down and in turn sell them when overvalued. Further, in the absence of liquidity requirements, informed traders can trade slighter to minimize transaction impacts. This is in consideration that informed traders do not have a desire to make prices more informative. The essence of this report is an analysis of various behaviors of both liquidity and informed traders, and also the impact they have on the prices of shares. Liquidity TraderIn the case of liquidity traders, shortfall penalty, as well as trading cost, was used to compute for the total cost. Referring to line chart labeled graph 1, it shows a smooth falling trading prices trend from 22.5 to 15.8. Even though, the tendency of the volume indicated on graph 2 revealed a fluctuation since there was steep shoot to 3000 at time 10:00:02 which then fell sharply and drastically to 300 at time 10:00:17. During this time the price steadied at 22.5. The impact was a negative relative association amid the prices and the trading volumes. Then, the time between 10:00:26 to 10:00:42, prices rose 24 from 22.5 while the volume fell from 700 to 500.The prices declined to 18 from 19.5, when the volume of trade rose to 1600 from 100.Graph 1
PRE-REPORT OF TRADING GAME310:00:0210:02:1710:05:3110:08:58051015202530LastGraph 210:00:0210:02:0310:05:1810:08:210500100015002000250030003500VolumeThe traders’ behaviors, for instance, Zixinliu, Tianshilia and ZiyangTan they bought share aggressively in the first 1.5 minutes; the probable reason is that could have an idea that the price was going to rise hence perform vigorously prior notice by the public. Furthermore, the large trade volume by the three traders revealed that the liquidity traders like NathanSpa and QuiruiHua followed the informed traders' transaction path. The resultant was increased price for the first 2 minutes. Referring tothe final true value it was revealed that the pricing stock was overvalued at the time. The informed traders like Zixinliu sold their stocked shares when the price shoot above 18 and purchased back the share when the price went below 18. Something to consider from these traders, informed, is that they traded slightly and then hidden their purpose in a more appropriately because of the hidden broker id rule. Due to this, the previous price was at 15.8 which a bit below the true value of 17.6. This could be due to an attempt of an individual trying to utilize hidden id to disturb the market. The quality of the market can be measured through effective spread that was
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