Information Tradeoffs in Dynamic Financial Markets

53 Pages Posted: 15 Mar 2012 Last revised: 5 Apr 2016

See all articles by Efstathios Avdis

Efstathios Avdis

University of Alberta - Department of Finance and Statistical Analysis

Date Written: March 1, 2016

Abstract

In dynamic financial markets the stochastic supply of risky assets has a significant informational role. Contrary to static models, where it acts as “noise,” in dynamic markets stochastic supply contains information about risk premiums. Acquiring private dividend information helps investors disentangle dividend information from discount-rate information contained in prices. For uninformed investors, however, as more informed investors enter the economy prices become more informative about dividends but less informative about discount rates. This tradeoff creates complementarities in information acquisition and multiple equilibria in the information market.

Keywords: Information acquisition, Dynamic financial markets, Rational expectations, Market efficiency, Complementarities

JEL Classification: D53, D82, D84, G14

Suggested Citation

Avdis, Efstathios, Information Tradeoffs in Dynamic Financial Markets (March 1, 2016). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=2022557 or http://dx.doi.org/10.2139/ssrn.2022557

Efstathios Avdis (Contact Author)

University of Alberta - Department of Finance and Statistical Analysis ( email )

2-32C Business Building
Edmonton, Alberta T6G 2R6
Canada

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