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Complementarities in information acquisition with short-term trades

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Author Info
Christophe Chamley () (Department of Economics, Boston University)
Abstract

In a financial market where agents trade for short-term profit and where news can increase the uncertainty of the public belief, there are strategic complementarities in the acquisition of private information and if the cost of information is sufficient small, a continuum of equilibrium strategies. Imperfect observation of past prices reduces the continuum of Nash-equilibrium to a Strongly Rational-Expectations Equilibrium. In that equilibrium, there are two sharply different regimes for the evolution of the price, the volume of trade and the information acquisition.

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Paper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number WP2006-042.

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Length: 29 pages
Date of creation: Jul 2006
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Handle: RePEc:bos:wpaper:wp2006-042

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Keywords: endogenous information; short-term gain; micro-structure; strategic complementarity; multiple equilibria; Strongly Rational-Expectations Equilibrium; trading frenzies.;

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Alper, C. Emre & Ardic, Oya Pinar & Fendoglu, Salih, 2007. "The Economics of Uncovered Interest Parity Condition for Emerging Markets: A Survey," MPRA Paper 4079, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  2. Hellwig, Christian & Veldkamp, Laura, 2007. "Knowing What Others Know: Coordination Motives in Information Acquisition," CEPR Discussion Papers 6506, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
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