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: Suggested Citation
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