Statistical Mechanics of Asset Markets with Private Information

22 Pages Posted: 3 Apr 2001

See all articles by Johannes Berg

Johannes Berg

Abdus Salam International Centre for Theoretical Physics (ICTP)

Matteo Marsili

Abdus Salam International Centre Theoretical Physics (ICTP)

Aldo Rustichini

University of Minnesota - Twin Cities - Department of Economics

Riccardo Zecchina

Abdus Salam International Centre for Theoretical Physics (ICTP)

Date Written: January 24, 2001

Abstract

Traders in a market typically have widely different, private information on the return of an asset. The equilibrium price of the asset may reflect this information more accurately if the number of traders is large enough compared to the number of the states of the world that determine the return of the asset. We study the transition from markets where prices do not reflect the information accurately into markets where it does. In competitive markets, this transition takes place suddenly, at a critical value of the ratio between number of states and number of traders. The Nash equilibrium market behaves quite differently from a competitive market even in the limit of large economies.

Keywords: Market efficiency, competitive markets, heterogeneous agents, adaptive learning

JEL Classification: G190, D820

Suggested Citation

Berg, Johannes and Marsili, Matteo and Rustichini, Aldo and Zecchina, Riccardo, Statistical Mechanics of Asset Markets with Private Information (January 24, 2001). Available at SSRN: https://ssrn.com/abstract=257437 or http://dx.doi.org/10.2139/ssrn.257437

Johannes Berg

Abdus Salam International Centre for Theoretical Physics (ICTP) ( email )

Strada Costiera 11
P.O. Box 586
34100 Trieste
Italy
+39 040 2240 296 (Phone)
+39 040 2241 163 (Fax)

Matteo Marsili (Contact Author)

Abdus Salam International Centre Theoretical Physics (ICTP)

Strada Costiera 11
34100 Trieste
Italy

Aldo Rustichini

University of Minnesota - Twin Cities - Department of Economics ( email )

271 19th Avenue South
Minneapolis, MN 55455
United States

Riccardo Zecchina

Abdus Salam International Centre for Theoretical Physics (ICTP) ( email )

Strada Costiera 11
34100 Trieste
Italy

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