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Information aggregation in a financial market with general signal structure
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Lou, Youcheng, Parsa, Sahar, Ray, Debraj, Li, Duan and Wang, Shouyang (2019) Information aggregation in a financial market with general signal structure. Journal of Economic Theory, 183 . pp. 594-624. doi:10.1016/j.jet.2019.05.004 ISSN 0022-0531.
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Official URL: http://dx.doi.org/10.1016/j.jet.2019.05.004
Abstract
We study a financial market with asymmetric, multidimensional trader signals that have general correlation structure. Each of a continuum of traders belongs to one of finitely many “information groups.” There is a multidimensional aggregate signal for each group. Each trader observes an idiosyncratic signal about the fundamental, built from this group signal. Correlations across group signals are arbitrary. Several existing models serve as special cases, and new applications become possible. We establish existence and regularity of linear equilibrium, and demonstrate that the equilibrium price aggregates information perfectly as noise trade vanishes.
Item Type: | Journal Article | ||||||||||||
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Subjects: | H Social Sciences > HG Finance | ||||||||||||
Divisions: | Faculty of Social Sciences > Economics | ||||||||||||
Library of Congress Subject Headings (LCSH): | Finance -- Mathematical models | ||||||||||||
Journal or Publication Title: | Journal of Economic Theory | ||||||||||||
Publisher: | Academic Press | ||||||||||||
ISSN: | 0022-0531 | ||||||||||||
Official Date: | September 2019 | ||||||||||||
Dates: |
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Volume: | 183 | ||||||||||||
Page Range: | pp. 594-624 | ||||||||||||
DOI: | 10.1016/j.jet.2019.05.004 | ||||||||||||
Status: | Peer Reviewed | ||||||||||||
Publication Status: | Published | ||||||||||||
Access rights to Published version: | Restricted or Subscription Access | ||||||||||||
Date of first compliant deposit: | 28 May 2019 | ||||||||||||
Date of first compliant Open Access: | 22 November 2020 | ||||||||||||
RIOXX Funder/Project Grant: |
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