Noise and Aggregation of Information in Large Markets

34 Pages Posted: 25 Aug 2003

See all articles by Diego Garcia

Diego Garcia

University of Colorado at Boulder - Leeds School of Business; University of North Carolina (UNC) at Chapel Hill - Finance Area

Branko Urosevic

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences

Date Written: February 21, 2005

Abstract

We study a novel class of noisy rational expectations equilibria in markets with large number of agents. We show that, as long as noise (liquidity traders, endowment shocks) increases with the number of agents in the economy, the limiting competitive equilibrium is well-defined and leads to non-trivial information acquisition, perfect information aggregation, and partially revealing prices, even if per capita noise tends to zero. We find that in such equilibrium risk sharing and price revelation play different roles than in the standard limiting economy in which per capita noise is not negligible. We apply our model to study information sales by a monopolist, information acquisition in multi-asset markets, and derivatives trading, and show that our model leads to qualitatively different results with respect to those in the existing literature. The limiting equilibria are shown to be perfectly competitive, even when a strategic solution concept is used.

Keywords: partially revealing equilibria, competitive equilibrium, rational expectations, information acquisition, markets for information derivatives trading, multi-asset markets, share auctions.

JEL Classification: D82, G14

Suggested Citation

Garcia, Diego and Urosevic, Branko, Noise and Aggregation of Information in Large Markets (February 21, 2005). Tuck Business School Working Paper No. 03-23. Available at SSRN: https://ssrn.com/abstract=437402 or http://dx.doi.org/10.2139/ssrn.437402

Diego Garcia (Contact Author)

University of Colorado at Boulder - Leeds School of Business ( email )

Boulder, CO 80309-0419
United States

University of North Carolina (UNC) at Chapel Hill - Finance Area

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

Branko Urosevic

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain
34-93-542-2590 (Phone)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
184
Abstract Views
1,704
rank
175,977
PlumX Metrics