Paper: arXiv 2602.21125

Authors: Christian Keller, Michael C. Tseng

Abstract

We generalize the seminal framework of Kyle (1985) to a many-asset setting, bridging the gap between informed-trading theory and modern trading practices. Specifically, we formulate an infinite-dimensional Bayesian trading game in which the informed trader’s private information may concern arbitrary aspects of the cross-sectional payoff structure across a continuum of traded assets. In this general setting, we obtain a parsimonious equilibrium characterized by a single scalar fixed point, which yields closed-form characterizations of equilibrium trading strategy, price impact within and across markets, and the information efficiency of equilibrium prices.

Complexity vs Empirical Score

  • Math Complexity: 9.5/10
  • Empirical Rigor: 2.0/10
  • Quadrant: Lab Rats — theoretically deep, empirically untested

Why this score: The paper provides a highly novel and mathematically rigorous infinite-dimensional generalization of the classic Kyle (1985) model using rough paths theory and reproducing kernel Hilbert spaces. However, it is purely theoretical in nature with no empirical backtesting or real-data applications included in this specific draft.

Research Flowchart

  flowchart TD
    A["Research Goal: Generalize Kyle (1985) to an Infinite-Dimensional, Continuum-of-Assets Setting"] --> B["Inputs: Continuum of Traded Assets & Arbitrary Cross-Sectional Private Info"]
    B --> C["Methodology: Formulate Infinite-Dimensional Bayesian Trading Game"]
    C --> D["Computational Process: Solve Equilibrium via a Single Scalar Fixed-Point Equation"]
    D --> E["Outcomes: Closed-Form Characterizations of Trading Strategy, Cross-Asset Price Impact, & Information Efficiency"]

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0 of 150 cited works are in the corpus; resolved via arXiv source bundles, Semantic Scholar and OpenAlex. Corpus-wide: 2518 linked papers.