Information Arrival, Delay, and Clustering in Financial Markets With Dynamic Freeriding

93 Pages Posted: 18 Jul 2019 Last revised: 14 Sep 2020

See all articles by Cyrus Aghamolla

Cyrus Aghamolla

University of Minnesota - Twin Cities

Tadashi Hashimoto

Yeshiva University

Date Written: July 17, 2019

Abstract

We study informational freeriding in a model where agents privately acquire information and then decide when to reveal it by taking an action. Examples of such freeriding are prevalent in financial markets, e.g., the timing of IPOs, analysts' forecasts, and mutual funds' investment decisions. The main results show that, in large populations, few agents provide significant information while the vast majority of agents freeride. We highlight the role of uncertainty and market size in shaping the dynamics of price discovery. Our predictions include, among others, that heightened uncertainty enhances information production, yet weakens the precision and speed of information aggregation in the market.

Keywords: Informational freeriding, information provision, endogenous timing, information acquisition, forecasts, delay, herding, clustering

JEL Classification: C73, D82, G14, H41

Suggested Citation

Aghamolla, Cyrus and Hashimoto, Tadashi, Information Arrival, Delay, and Clustering in Financial Markets With Dynamic Freeriding (July 17, 2019). Journal of Financial Economics (JFE), Vol. 138, No. 1, 2020, Available at SSRN: https://ssrn.com/abstract=3422211 or http://dx.doi.org/10.2139/ssrn.3422211

Cyrus Aghamolla

University of Minnesota - Twin Cities ( email )

420 Delaware St. SE
Minneapolis, MN 55455
United States

Tadashi Hashimoto (Contact Author)

Yeshiva University ( email )

500 West 185th Street
New York, NY NEW YORK 10033
United States

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