Secret and Overt Information Acquisition in Financial Markets

51 Pages Posted: 7 May 2020 Last revised: 3 Aug 2020

See all articles by Yan Xiong

Yan Xiong

The Hong Kong University of Science and Technology

Liyan Yang

University of Toronto - Rotman School of Management

Date Written: April 18, 2020

Abstract

We develop a model to study the observability of investors’ information acquisition in financial markets. Relative to observable information acquisition, unobservable information acquisition leads to more information production if and only if the ratio of the information-acquisition cost to noise trading is relatively high. This information-production result has further consequences for market quality. Different information-acquisition models can generate qualitatively different results. When investors endogenously choose the observability of their information-acquisition behavior, their equilibrium choices always feature a prisoner's dilemma. Our analysis has implications for regulations on investors’ private meetings with company management and the practice of tracing investors’ digital footprints.

Keywords: Information acquisition, observability, prisoner's dilemma, regulations, digital footprints

JEL Classification: D82, G14, G18

Suggested Citation

Xiong, Yan and Yang, Liyan, Secret and Overt Information Acquisition in Financial Markets (April 18, 2020). Available at SSRN: https://ssrn.com/abstract=3579214 or http://dx.doi.org/10.2139/ssrn.3579214

Yan Xiong (Contact Author)

The Hong Kong University of Science and Technology ( email )

HKUST
Kowloon
Hong Kong
Hong Kong

Liyan Yang

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

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