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Information sharing in financial markets

Author

Listed:
  • Goldstein, Itay
  • Xiong, Yan
  • Yang, Liyan

Abstract

We study information sharing between strategic investors who are informed about asset fundamentals. We demonstrate that a coarsely informed investor optimally chooses to share information if his counterparty investor is well informed. By doing so, the coarsely informed investor invites the other investor to trade against his information, thereby reducing his price impact. Paradoxically, the well informed investor loses from receiving information because of the resulting worsened market liquidity and the more aggressive trading by the coarsely informed investor. Our analysis sheds light on phenomena such as private communications among investors and public information sharing on social media.

Suggested Citation

  • Goldstein, Itay & Xiong, Yan & Yang, Liyan, 2025. "Information sharing in financial markets," Journal of Financial Economics, Elsevier, vol. 163(C).
    • Handle: RePEc:eee:jfinec:v:163:y:2025:i:c:s0304405x24001909
    DOI: 10.1016/j.jfineco.2024.103967
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    More about this item

    Keywords

    Information sharing; Trading against error; Trading profits; Asset markets;
    All these keywords.

    JEL classification:

    • 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
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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