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Information arrival, delay, and clustering in financial markets with dynamic freeriding

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  • Aghamolla, Cyrus
  • Hashimoto, Tadashi

Abstract

We study informational freeriding in a model where agents privately acquire information and then decide when to reveal it by taking an action. Examples of such freeriding are prevalent in financial markets, e.g., the timing of initial public offerings, analysts’ forecasts, and mutual funds’ investment decisions. The main results show that, in large populations, few agents provide significant information while the vast majority of agents freeride. We highlight the role of uncertainty and market size in shaping the dynamics of price discovery. Among other results, we find that heightened uncertainty over the underlying state enhances information production, yet weakens the precision and speed of information aggregation in the market.

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  • Aghamolla, Cyrus & Hashimoto, Tadashi, 2020. "Information arrival, delay, and clustering in financial markets with dynamic freeriding," Journal of Financial Economics, Elsevier, vol. 138(1), pages 27-52.
    • Handle: RePEc:eee:jfinec:v:138:y:2020:i:1:p:27-52
    DOI: 10.1016/j.jfineco.2020.04.011
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    3. Kirpalani, Rishabh & Madsen, Erik, 2023. "Strategic investment evaluation," Theoretical Economics, Econometric Society, vol. 18(3), July.

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    More about this item

    Keywords

    Informational freeriding; Information provision; Endogenous timing; Information acquisition; Herding;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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