Annals of Finance

, Volume 11, Issue 3–4, pp 297–318 | Cite as

Robustness of equilibrium in the Kyle model of informed speculation

  • Alex BoulatovEmail author
  • Dan Bernhardt
Research Article


We analyze a static Kyle (Continuous auctions and insider trading. Princeton University, Princeton, 1983) model in which a risk-neutral informed trader can use arbitrary (linear or non-linear) deterministic strategies, and a finite number of market makers can use arbitrary pricing rules. We establish a strong sense in which the linear Kyle equilibrium is robust: the first variation in any agent’s expected payoff with respect to a small variation in his conjecture about the strategies of others vanishes at equilibrium. Thus, small errors in a market maker’s beliefs about the informed speculator’s trading strategy do not reduce his expected payoffs. Therefore, the original equilibrium strategies remain optimal and still constitute an equilibrium (neglecting the higher-order terms). We also establish that if a non-linear equilibrium exists, then it is not robust.


Market microstructure Informed speculation Bayesian Nash equilibrium Uniqueness Robustness Information 

JEL Classification

G12 G14 C62 


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Copyright information

© Springer-Verlag Berlin Heidelberg 2015

Authors and Affiliations

  1. 1.HSE Moscow, ICEFMoscowRussian Federation
  2. 2.Department of EconomicsUniversity of Illinois at Urbana-ChampaignUrbana-ChampaignUSA

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