Information Spillovers in Asset Markets with Correlated Values
- (pp. 2007-40)
AbstractWe study information spillovers in a dynamic setting with correlated assets owned by privately informed sellers. In the model, a trade of one asset can provide information about the value of other assets. Importantly, the information content of trading behavior is endogenously determined. We show that this endogeneity leads to multiple equilibria when assets are sufficiently correlated. The equilibria are ranked in terms of both trade volume and efficiency. The model has implications for policies targeting post-trade transparency. We show that introducing post-trade transparency can increase or decrease welfare and trading volume depending on the asset correlation, equilibrium being played, and the composition of market participants.
Citation2017. "Information Spillovers in Asset Markets with Correlated Values." American Economic Review, 107(7): 2007-40. DOI: 10.1257/aer.20151714
- D82 Asymmetric and Private Information; Mechanism Design
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- G14 Information and Market Efficiency; Event Studies; Insider Trading
- G18 General Financial Markets: Government Policy and Regulation