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Complementarities in information acquisition with short-term trades

Author

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    (Paris-Jourdan Sciences Economiques and Boston University)

Abstract
In a financial market where agents trade for short-term profit and where news can increase the uncertainty of the public belief, there are strategic complementarities in the acquisition of private information and, if the cost of information is sufficiently small, a continuum of equilibrium strategies. Imperfect observation of past prices reduces the continuum of Nash equilibria to a Strongly Rational-Expectations Equilibrium. In that equilibrium, there are two sharply different regimes for the evolution of the price, the volume of trade, and information acquisition.

Suggested Citation

  • ,, 2007. "Complementarities in information acquisition with short-term trades," Theoretical Economics, Econometric Society, vol. 2(4), December.
    • Handle: RePEc:the:publsh:294
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    File URL: http://econtheory.org/ojs/index.php/te/article/viewFile/20070441/1481/69
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    Citations

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    Cited by:

    1. Gabrielle Demange, 2009. "Information revelation in a security market: The impact of uncertain participation," PSE Working Papers halshs-00575046, HAL.
    2. Zhifeng Cai, 2020. "Dynamic information acquisition and time-varying uncertainty," Departmental Working Papers 202002, Rutgers University, Department of Economics.
    3. Filzen, Joshua J. & Schutte, Maria Gabriela, 2017. "Comovement, financial reporting complexity, and information markets: Evidence from the effect of changes in 10-Q lengths on internet search volumes and peer correlations," The North American Journal of Economics and Finance, Elsevier, vol. 39(C), pages 19-37.
    4. Robert S. Gibbons & Richard T. Holden & Michael L. Powell, 2010. "Rational-Expectations Equilibrium in Intermediate Good Markets," NBER Working Papers 15783, National Bureau of Economic Research, Inc.
    5. Gabriel Desgranges & Maik Heinemann, 2008. "Strongly Rational Expectations Equilibria,Endogenous Acquisition of Information and the Grossman–Stiglitz Paradox," THEMA Working Papers 2008-25, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    6. Hirshleifer, David & Teoh, Siew Hong, 2008. "Thought and Behavior Contagion in Capital Markets," MPRA Paper 9164, University Library of Munich, Germany.
    7. Dirk Bergemann & Xianwen Shi & Juuso Valimaki, 2009. "Information Acquisition in Interdependent Value Actions," Journal of the European Economic Association, MIT Press, vol. 7(1), pages 61-89, March.
    8. Giovanni Cespa & Thierry Focault, 2011. "Learning from Prices, Liquidity Spillovers, and Market Segmentation," CSEF Working Papers 284, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    9. Manzano, Carolina & Vives, Xavier, 2011. "Public and private learning from prices, strategic substitutability and complementarity, and equilibrium multiplicity," Journal of Mathematical Economics, Elsevier, vol. 47(3), pages 346-369.
    10. Kendall, Chad, 2018. "The time cost of information in financial markets," Journal of Economic Theory, Elsevier, vol. 176(C), pages 118-157.
    11. Christophe Chamley, 2010. "Strategic complementarity of information in financial markets with large shocks," Annals of Finance, Springer, vol. 6(1), pages 137-145, January.

    More about this item

    Keywords

    Endogenous information; short-term gain; microstructure; strategic complementarity; multiple equilibria; Strongly Rational-Expectations Equilibrium; trading frenzies;
    All these keywords.

    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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