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Information Percolation in Segmented MarketsDarrell DuffieStanford University - Graduate School of Business Gustavo MansoUniversity of California, Berkeley - Haas School of Business Semyon MalamudEcole Polytechnique Federale de Lausanne and Swiss Finance Institute; Swiss Finance Institute May 20, 2012 Swiss Finance Institute Research Paper No. 10-09 Abstract: 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, D44 working papers seriesDate posted: March 9, 2010 ; Last revised: May 29, 2012Suggested CitationContact Information
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