A stochastic differential game of institutional investor speculation

David W. K. Yeung

Research output: Contribution to journalJournal articlepeer-review

11 Citations (Scopus)


Corporate equities have become increasingly concentrated in the hands of institutional investors. Since these investors trade in large blocks, it is likely that their activities affect equity price significantly. Knowing this, institutional investors have incentives to manipulate the market. This has transformed the supposedly competitive stock market into a market with imperfect competition and speculation. This paper develops a stochastic differential game to analyze institutional investors speculation. A feedback Nash equilibrium solution is obtained and crucial results (including value functions, investment strategies, and equilibrium price dynamics) are derived in closed-form expressions. In particular, it is shown that the market becomes more volatile with institutional speculation. Institutional investors profits are also shown to vary positively with uncertainty, implying that institutional investment is attracted to highly uncertain markets like emerging markets.
Original languageEnglish
Pages (from-to)463-477
Number of pages15
JournalJournal of Optimization Theory and Applications
Issue number3
Publication statusPublished - Sept 1999
Externally publishedYes

User-Defined Keywords

  • Stochastic differential games
  • feedback strategies
  • institutional investors speculation
  • equity market


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