Information sharing in a perfectly competitive market

Yaqing Yang and Youcheng Lou

The North American Journal of Economics and Finance, 2024, vol. 69, issue PA

Abstract: We consider a large rational expectations economy where traders can share information with each other via an information network and investigate the impact of network connectedness on market equilibrium outcomes. We find that in the equilibrium with endogenous information, increasing network connectedness increases the total information in the market and trading volume, improves market efficiency, and enhances liquidity if and only if the market is sufficiently informationally efficient. Additionally, we provide a necessary and sufficient condition on the monotonicity of traders’ welfare over network connectedness. We also show that the implications in the baseline model also hold for some extensions.

Keywords: Rational expectations equilibrium; Information sharing; Network connectedness; Welfare (search for similar items in EconPapers)
JEL-codes: D82 G14 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:69:y:2024:i:pa:s1062940823001389

DOI: 10.1016/j.najef.2023.102015

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