Multidimensional Noise and Non-Fundamental Information Diversity

Posted: 15 Jan 2020 Last revised: 18 Nov 2020

Date Written: March 31, 2020

Abstract

In this paper, I relax the common assumption of the one-dimensionality of noise made in the standard noisy rational expectations framework. Within an environment characterized by multidimensional noise, I explore the strategic interactions between different traders that are informed about different components of the noise inherent in the market price. I find that agents' trades against different types of noise are complements due to a reduction in uncertainty about fundamentals initiated by more aggressive trading. Strategic complementarities can also be found in the information market. Both acquiring information about the same type and about different types of noise can be complements

Keywords: Rational Expectations Equilibrium, Complementarities, Noise Traders, Non-Fundamental Information

JEL Classification: C62, D53, G12, G40

Suggested Citation

Russ, David, Multidimensional Noise and Non-Fundamental Information Diversity (March 31, 2020). Available at SSRN: https://ssrn.com/abstract=3506654 or http://dx.doi.org/10.2139/ssrn.3506654

David Russ (Contact Author)

Universitaet Regensburg ( email )

Universitaetsstrasse 31
D-93040 Regensburg
Germany

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