The Multivariate Kyle model: More is different

L. C. Garcia Del Molino , I. Mastromatteo , Michael Benzaquen (1) , J.-P. Bouchaud

1 LadHyX - Laboratoire d'hydrodynamique

We reconsider the multivariate Kyle model in a risk-neutral setting with a single, perfectly informed rational insider and a rational competitive market maker, setting the price of n correlated securities. We prove the unicity of a symmetric, positive definite solution for the impact matrix and provide insights on its interpretation. We explore its implications from the perspective of empirical market microstructure, and argue that it provides a sensible inference procedure to cure some pathologies encountered in recent attempts to calibrate cross-impact matrices.

Domaines: Finance quantitative [q-fin.CP]

L. C. Garcia Del Molino, I. Mastromatteo, Michael Benzaquen, J.-P. Bouchaud. The Multivariate Kyle model: More is different. SIAM Journal on Financial Mathematics, 2020. ⟨hal-02323433⟩