Strategic Trading in a Dynamic Noisy Market

This paper studies a dynamic, stationary model of a financial market with a large trader and small noise trader. At each period the alrge trader receives a privately observed stock endowment, and trades with competitive market-makers in order to share dividend risk. When the time between trades goes to 0, the trading process consists of two phases. During the first very short phase, the large trader sells a fraction of his endowment and is identified by the market-makers. He then competes his trades during the second longer phase. Closed-form solutions are obtained for a special case.