INFORMATION, TRADE, AND DERIVATIVE SECURITIES

Hellwig's (1980) model is used to analyze the value of improving tradi ng opportunities by more frequent trading in the underlying asset, or by trading in a derivative asset, with multiple trading sessions, unin formed Investors behave as rational trend followers, while more inform ed investors follow a contrarian strategy. As trading becomes continuo us, Pareto efficiency is achieved With trading in an appropriate deriv ative security, Pareto efficiency may be achieved in only a single rou nd of trading. All derivative claims are then priced on Black and Scho les (1973) principles and, in the absence of further supply shocks, no trading will take place in subsequent trading rounds.