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Information Aggregation in Dynamic Markets with Strategic Traders

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  • Ostrovsky, Michael

    (Stanford University)

Abstract

This paper studies information aggregation in dynamic markets with a finite number of partially informed strategic traders. It shows that for a broad class of securities, information in such markets always gets aggregated. Trading takes place in a bounded time interval, and in every equilibrium, as time approaches the end of the interval, the market price of a "separable" security converges in probability to its expected value conditional on the traders' pooled information. If the security is "non-separable," then there exists a common prior over the states of the world and an equilibrium such that information does not get aggregated. The class of separable securities includes, among others, Arrow-Debreu securities, whose value is one in one state of the world and zero in all others, and "additive" securities, whose value can be interpreted as the sum of traders' signals.

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  • Ostrovsky, Michael, 2009. "Information Aggregation in Dynamic Markets with Strategic Traders," Research Papers 2053, Stanford University, Graduate School of Business.
    • Handle: RePEc:ecl:stabus:2053
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    References listed on IDEAS

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