All traders in the first week of the trading game were liquidity traders. Liquidity traders are also known as uninformed traders. Each person is given a unique goal of either having to buy or sell a specific amount of BHP shares before the time of each of the two games ran out. As well as aiming to achieve this goal, our other objective is to examine the effects on the price of the stock on arrival of public information given that all traders are uninformed traders.
My expectations of the game were that movements in the price would be minimal, as no trader knows the fundamental value of BHP stock, especially at the opening of the market. I expected prices to adjust slightly as a reaction to news and would only expect prices to steadily rise or fall if the pattern of news happened to be consistently good or consistently bad.
I found that price movements were quite minimal in both games. Prices started to move more in both games in their respective directions as consistent good news came about in the first game and consistent bad news in the second game. In both games, especially in the first, trades took a while to take place initially as I believe most traders were waiting for news to roll in to indicate the direction the fundamental value of BHP would be.
The last trade in the first game was $32.21 with V = $31.27 and VWAP = $31.96. The last trade in the second game was $30 with V = $29.83 and VWAP = $30.95.
In both games, the last trade price was relatively close to V. We, as the traders overvalued the stock in both games which means people are relatively optimistic to the news provided regardless of whether the news is good or bad. Getting to the V of BHP would never have been exact as no traders were informed so people were only trading to meet their liquidity requirements. Ending close to the V as our class did was more of chance rather than skill as traders.
Kyle’s model states that to...