Abstract

http://ssrn.com/abstract=1787041
 
 

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Social Networks, Information Acquisition, and Asset Prices


Bing Han


University of Texas at Austin - McCombs School of Business

Liyan Yang


University of Toronto - Rotman School of Management

March 15, 2011

Management Science, 2013, 59(6), 1444-1457

Abstract:     
We analyze a rational expectations equilibrium model to explore the implications of information networks for the financial market. When information is exogenous, social communication improves market efficiency. However, social communication crowds out information production due to traders' incentives to "free-ride" on informed friends and on a more informative price system. Overall, social communication hurts market efficiency when information is endogenous. The network effects on the cost of capital, liquidity, trading volume, and welfare are also sensitive to whether information is endogenous. Our analysis highlights the importance of information acquisition in examining the implications of information networks for financial markets.

Number of Pages in PDF File: 43

Keywords: social communication, price informativeness, information acquisition, asset prices, liquidity, volume, welfare

JEL Classification: G14, G12, G11, D82

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Date posted: March 18, 2011 ; Last revised: June 6, 2013

Suggested Citation

Han, Bing and Yang, Liyan, Social Networks, Information Acquisition, and Asset Prices (March 15, 2011). Management Science, 2013, 59(6), 1444-1457. Available at SSRN: http://ssrn.com/abstract=1787041 or http://dx.doi.org/10.2139/ssrn.1787041

Contact Information

Bing Han (Contact Author)
University of Texas at Austin - McCombs School of Business ( email )
1 University Station - B6600
Austin, TX 78712
United States
(512) 232-6822 (Phone)
Liyan Yang
University of Toronto - Rotman School of Management ( email )
105 St. George Street
Toronto, Ontario M5S 3E6
Canada

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