The Impact of Short-term Traders on equilibrium multiplicity and Market Efficiency

We investigate the impacts of intertemporal utility discounting on equilibrium multiplicity and market information efficiency in a dynamic trading model. We find that the strategic complement caused by short-term speculation always generates multiple equilibria whether or not informed traders value the effect of the intertemporal utility. Along with the high trading intensity equilibrium, the market liquidity, price informativeness and expected volume are always higher than that under the “low trading intensity equilibrium”. With the increase of the effect of intertemporal utility on investors, the difference of price informativeness, expected volume and the market liquidity in the first period between two equilibria gradually decrease, while the difference between the market liquidity of the second period gradually increases.