Information Sharing in Financial Markets

55 Pages Posted: 14 Jul 2020 Last revised: 24 Jan 2023

See all articles by Itay Goldstein

Itay Goldstein

University of Pennsylvania - The Wharton School - Finance Department ; National Bureau of Economic Research (NBER)

Yan Xiong

The Hong Kong University of Science and Technology

Liyan Yang

University of Toronto - Rotman School of Management

Date Written: June 22, 2021

Abstract

We study information sharing between strategic investors who are informed about asset fundamentals. We demonstrate that a coarsely informed investor optimally chooses to share information if his counterparty investor is well informed. By doing so, the coarsely informed investor invites the other investor to trade against his information, thereby reducing his price impact. Paradoxically, the well informed investor loses from receiving information because of the resulting worsened market liquidity and the more aggressive trading by the coarsely informed investor. Our analysis sheds light on phenomena such as private communications among investors and public information sharing on social media.

Keywords: Information sharing, communication, sentiment, asset pricing

JEL Classification: D82, G14, G18

Suggested Citation

Goldstein, Itay and Xiong, Yan and Yang, Liyan, Information Sharing in Financial Markets (June 22, 2021). Available at SSRN: https://ssrn.com/abstract=3632315 or http://dx.doi.org/10.2139/ssrn.3632315

Itay Goldstein

University of Pennsylvania - The Wharton School - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States
215-746-0499 (Phone)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Yan Xiong

The Hong Kong University of Science and Technology ( email )

HKUST
Kowloon
Hong Kong
Hong Kong

Liyan Yang (Contact Author)

University of Toronto - Rotman School of Management ( email )

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

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