Information aggregation in a financial market with general signal structure

Youcheng Lou, Sahar Parsa, Debraj Ray, Duan Li, Shouyang Wang

    Research output: Contribution to journalArticle

    Abstract

    We study a financial market with asymmetric, multidimensional trader signals that have general correlation structure. Each of a continuum of traders belongs to one of finitely many “information groups.” There is a multidimensional aggregate signal for each group. Each trader observes an idiosyncratic signal about the fundamental, built from this group signal. Correlations across group signals are arbitrary. Several existing models serve as special cases, and new applications become possible. We establish existence and regularity of linear equilibrium, and demonstrate that the equilibrium price aggregates information perfectly as noise trade vanishes.

    Original languageEnglish (US)
    Pages (from-to)594-624
    Number of pages31
    JournalJournal of Economic Theory
    Volume183
    DOIs
    StatePublished - Sep 1 2019

    Fingerprint

    Information aggregation
    Financial markets
    Traders
    Equilibrium price
    Regularity
    Correlation structure

    Keywords

    • Asymmetric information
    • Information aggregation
    • Multidimensional signals
    • Rational expectations equilibrium

    ASJC Scopus subject areas

    • Economics and Econometrics

    Cite this

    Information aggregation in a financial market with general signal structure. / Lou, Youcheng; Parsa, Sahar; Ray, Debraj; Li, Duan; Wang, Shouyang.

    In: Journal of Economic Theory, Vol. 183, 01.09.2019, p. 594-624.

    Research output: Contribution to journalArticle

    Lou, Youcheng ; Parsa, Sahar ; Ray, Debraj ; Li, Duan ; Wang, Shouyang. / Information aggregation in a financial market with general signal structure. In: Journal of Economic Theory. 2019 ; Vol. 183. pp. 594-624.
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