Information Sharing in Financial Markets

68 Pages Posted: 14 Jul 2020 Last revised: 23 Jun 2021

See all articles by Itay Goldstein

Itay Goldstein

University of Pennsylvania - The Wharton School - Finance Department

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

This paper studies information sharing between strategic investors who are privately informed about asset fundamental with different precision levels. We find that a coarsely informed investor would always share her information “as is” if her counterparty investor is well informed about the fundamental. By doing so, the coarsely informed investor invites the well informed investor to trade against her information, thereby offsetting her informed order flow and reducing the price impact. In equilibrium, the coarsely informed investor gains from the information sharing and the well informed investor loses from it. Our model offers insights for financial phenomena such as information networks in financial markets and institutional investors' trading strategies based on sentiment.

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)

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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