Information aggregation in a financial market with general signal structure

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

6 Scopus Citations
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Author(s)

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

Related Research Unit(s)

Detail(s)

Original languageEnglish
Pages (from-to)594-624
Journal / PublicationJournal of Economic Theory
Volume183
Online published22 May 2019
Publication statusPublished - Sep 2019

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.

Research Area(s)

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

Citation Format(s)

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, 09.2019, p. 594-624.

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review