Information Percolation in Segmented Markets
Stanford University - Graduate School of Business
University of California, Berkeley - Haas School of Business
Ecole Polytechnique Federale de Lausanne and Swiss Finance Institute; Swiss Finance Institute
May 20, 2012
Swiss Finance Institute Research Paper No. 10-09
We calculate equilibria of dynamic over-the-counter markets in which agents are distinguished by their preferences and information. Over time, agents are privately informed by bids and offers. Investors differ with respect to information quality, including initial information precision as well as market "connectivity," the expected frequency of their bilateral trading opportunities. We characterize endogenous information acquisition and show how learning externalities affect information gathering incentives. In particular, comparative statics for static and dynamic models may go in opposite directions. Information acquisition can be lower in more "liquid" (active) dynamic markets.
Number of Pages in PDF File: 96
Keywords: Search, Matching, Double Auctions, Segmented Markets, Equilibrium, Information, Percolation
JEL Classification: C78, C73, C62, D44working papers series
Date posted: March 9, 2010 ; Last revised: May 29, 2012
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