Information Acquisition in Financial Markets
Federal Reserve Bank of Chicago; National Bureau of Economic Research (NBER); Institute for the Study of Labor (IZA)
University of Chicago - Booth School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)
Review of Economic Studies
Previous work on information and financial markets has focused on a special set of assumptions: agents have exponential utility, and random variables are normally distributed. These assumptions are often necessary to obtain closed-form solutions. We present an example with alternative assumptions, and demonstrate that some of the conclusions from previous literature fail to hold. In particular, we show that in our example, as more agents acquire information, prices do not necessarily become more informative, and agents may have greater incentive to acquire information. Learning can therefore be a strategic complement, allowing for the possibility of multiple equilibria.
JEL Classification: C14, D82, D84Accepted Paper Series
Date posted: February 9, 1999
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