Information Percolation in Segmented Markets

86 Pages Posted: 12 Aug 2011

See all articles by Darrell Duffie

Darrell Duffie

Stanford University - Graduate School of Business; National Bureau of Economic Research (NBER)

Semyon Malamud

Ecole Polytechnique Federale de Lausanne; Centre for Economic Policy Research (CEPR); Swiss Finance Institute

Gustavo Manso

University of California, Berkeley - Haas School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: August 2011

Abstract

We calculate equilibria of dynamic double-auction markets in which agents are distinguished by their preferences and information. Over time, agents are privately informed by bids and offers. Investors are segmented into groups that differ with respect to characteristics determining information quality, including initial information precision as well as market "connectivity," the expected frequency of their trading opportunities. Investors with superior information sources attain strictly higher expected profits, provided their counterparties are unable to observe the quality of those sources. If, however, the quality of bidders' information sources are commonly observable, then, under conditions, investors with superior information sources have strictly lower expected profits.

Suggested Citation

Duffie, James Darrell and Malamud, Semyon and Manso, Gustavo, Information Percolation in Segmented Markets (August 2011). NBER Working Paper No. w17295. Available at SSRN: https://ssrn.com/abstract=1908583

James Darrell Duffie (Contact Author)

Stanford University - Graduate School of Business ( email )

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National Bureau of Economic Research (NBER)

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Semyon Malamud

Ecole Polytechnique Federale de Lausanne ( email )

Lausanne, 1015
Switzerland

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Swiss Finance Institute

c/o University of Geneva
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CH-1211 Geneva 4
Switzerland

Gustavo Manso

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

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