Complementarities, Multiplicity, and Supply Information

Journal of the European Economic Association, Vol. 7, No. 1, pp. 90-115, 2009

46 Pages Posted: 13 Jul 2006 Last revised: 13 Aug 2011

See all articles by Liyan Yang

Liyan Yang

University of Toronto - Rotman School of Management

Jayant V. Ganguli

University of Essex - Department of Economics

Date Written: September 10, 2008

Abstract

If traders can obtain private information about the supply of a stock in addition to that about its payoff, then (i) complementarity in information acquisition and (ii) multiple equilibria in the financial market and the information market can exist. The additional dimension of supply information increases coordination possibilities in the financial market leading to multiple equilibria. The existence of multiple (two) information sources can lead to information acquisition being complementary. The multiplicity of equilibria is suggestive of excess volatility and crashes. The different financial market equilibria imply differing patterns of cost of capital and volume of trade.

Keywords: CARA-normal, supply information, complementarities, multiplicity

JEL Classification: D82, D83, G14

Suggested Citation

Yang, Liyan and Ganguli, Jayant V., Complementarities, Multiplicity, and Supply Information (September 10, 2008). Journal of the European Economic Association, Vol. 7, No. 1, pp. 90-115, 2009 . Available at SSRN: https://ssrn.com/abstract=913992

Liyan Yang (Contact Author)

University of Toronto - Rotman School of Management ( email )

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

Jayant V. Ganguli

University of Essex - Department of Economics ( email )

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom

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