TY - JOUR
T1 - Information aggregation in a financial market with general signal structure
AU - Lou, Youcheng
AU - Parsa, Sahar
AU - Ray, Debraj
AU - Li, Duan
AU - Wang, Shouyang
N1 - Funding Information:
This paper combines (a) the results on existence and equilibrium structure in Lou et al. (2017), and (b) the information aggregation result in Parsa and Ray (2017), extending the analysis to multidimensional signals. Names are in random order, as proposed in Ray ⓡ Robson (2018). Lou and Li acknowledge the support of Hong Kong Research Grants Council under Grant 14204514. Lou also acknowledges the support of Hong Kong Scholars Program under Grant XJ2015049. Ray acknowledges research support under NSF Grant SES-1629370. We thank the editor Xavier Vives and three anonymous referees for helpful comments and suggestions. Lou would especially like to express his gratitude to his wife Shujuan for her continued support.
Publisher Copyright:
© 2019 Elsevier Inc.
PY - 2019/9
Y1 - 2019/9
N2 - We study a financial market with asymmetric, multidimensional trader signals that have general correlation structure. Each of a continuum of traders belongs to one of finitely many “information groups.” There is a multidimensional aggregate signal for each group. Each trader observes an idiosyncratic signal about the fundamental, built from this group signal. Correlations across group signals are arbitrary. Several existing models serve as special cases, and new applications become possible. We establish existence and regularity of linear equilibrium, and demonstrate that the equilibrium price aggregates information perfectly as noise trade vanishes.
AB - We study a financial market with asymmetric, multidimensional trader signals that have general correlation structure. Each of a continuum of traders belongs to one of finitely many “information groups.” There is a multidimensional aggregate signal for each group. Each trader observes an idiosyncratic signal about the fundamental, built from this group signal. Correlations across group signals are arbitrary. Several existing models serve as special cases, and new applications become possible. We establish existence and regularity of linear equilibrium, and demonstrate that the equilibrium price aggregates information perfectly as noise trade vanishes.
KW - Asymmetric information
KW - Information aggregation
KW - Multidimensional signals
KW - Rational expectations equilibrium
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U2 - 10.1016/j.jet.2019.05.004
DO - 10.1016/j.jet.2019.05.004
M3 - Article
AN - SCOPUS:85069715746
SN - 0022-0531
VL - 183
SP - 594
EP - 624
JO - Journal of Economic Theory
JF - Journal of Economic Theory
ER -