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Who Acquires Information in Dealer Markets?

Author

Listed:
  • Jesper Rüdiger
  • Adrien Vigier

Abstract

We study information acquisition in dealer markets. We first identify a one-sided strategic complementarity in information acquisition: the more informed traders are, the larger market makers' gain from becoming informed. When quotes are observable, this effect in turn induces a strategic complementarity in information acquisition amongst market makers. We then derive the equilibrium pattern of information acquisition and examine the implications of our analysis for market liquidity and price discovery. We show that increasing the cost of information can decrease market liquidity and improve price discovery.

Suggested Citation

  • Jesper Rüdiger & Adrien Vigier, 2020. "Who Acquires Information in Dealer Markets?," American Economic Review, American Economic Association, vol. 110(4), pages 1145-1176, April.
    • Handle: RePEc:aea:aecrev:v:110:y:2020:i:4:p:1145-76
    DOI: 10.1257/aer.20170690
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    Citations

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    Cited by:

    1. Pintér, Gábor & Wang, Chaojun & Zou, Junyuan, 2022. "Information chasing versus adverse selection," Bank of England working papers 971, Bank of England.
    2. Mehmet Ekmekci & Nenad Kos, 2020. "Signaling Covertly Acquired Information," Working Papers 658, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    3. Ekmekci, Mehmet & Kos, Nenad, 2023. "Signaling covertly acquired information," Journal of Economic Theory, Elsevier, vol. 214(C).
    4. Rüdiger, Jesper & Vigier, Adrien, 2019. "Learning about analysts," Journal of Economic Theory, Elsevier, vol. 180(C), pages 304-335.
    5. In-Koo Cho, 2023. "Signaling games with endogenous types," International Journal of Game Theory, Springer;Game Theory Society, vol. 52(1), pages 157-174, March.

    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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