Information Spillovers in Asset Markets with Correlated Values

36 Pages Posted: 18 Feb 2015 Last revised: 3 May 2017

See all articles by Vladimir Asriyan

Vladimir Asriyan

CREI; Universitat Pompeu Fabra; Barcelona GSE; Centre for Economic Policy Research (CEPR)

William Fuchs

University of Texas at Austin - Department of Finance; Universidad Carlos III de Madrid - Department of Economics

Brett S. Green

University of California, Berkeley - Haas School of Business; Washington University in St. Louis - John M. Olin Business School

Date Written: May 1, 2017

Abstract

We study information spillovers in a dynamic setting with correlated assets owned by privately-informed sellers. In the model, a trade of one asset can provide information about the value of other assets. Importantly, the information content of trading behavior is endogenously determined. We show that this endogeneity leads to multiple equilibria when assets are sufficiently correlated. The equilibria are ranked in terms of both trade volume and efficiency. The model has implications for policies targeting post-trade transparency. We show that introducing post-trade transparency can increase or decrease welfare and trading volume depending on the asset correlation, equilibrium being played, and the composition of market participants.

Keywords: Information Spillovers, Transparency, Adverse Selection, Information Aggregation

JEL Classification: D82, G14, C73

Suggested Citation

Asriyan, Vladimir and Fuchs, William Martin and Green, Brett S., Information Spillovers in Asset Markets with Correlated Values (May 1, 2017). American Economic Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2565944 or http://dx.doi.org/10.2139/ssrn.2565944

Vladimir Asriyan

CREI ( email )

Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain

HOME PAGE: http://crei.cat/people/asriyan/welcome.html

Universitat Pompeu Fabra ( email )

Ramon Trias Fargas, 25-27
Barcelona, E-08005
Spain

HOME PAGE: http://www.econ.upf.edu/en/people/onefaculty.php?id=p7040

Barcelona GSE ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

HOME PAGE: http://www.barcelonagse.eu/Faculty.php?id=510

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

William Martin Fuchs

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States

Universidad Carlos III de Madrid - Department of Economics ( email )

Calle Madrid 126
Getafe, 28903
Spain

Brett S. Green (Contact Author)

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

2220 Piedmont Avenue
Berkeley, CA ca 94720
United States
5105759980 (Phone)

HOME PAGE: http://faculty.haas.berkeley.edu/bgreen/

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

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