The time cost of information in financial markets

Chad Kendall

Journal of Economic Theory, 2018, vol. 176, issue C, 118-157

Abstract: I model a financial market in which traders acquire private information through time-consuming research. A time cost of information arises due to competition – through the expected adverse price movements due to others' trades – causing traders to rush to trade on weak information. This cost monotonically increases with asset value uncertainty, so that, exactly opposite to the result under the standard modeling assumption of a monetary cost of information, traders acquire the least information when this uncertainty is largest. The model makes several novel testable predictions regarding volume and order imbalances, some of which have existing empirical support.

Keywords: Information acquisition; Financial markets; Informational efficiency (search for similar items in EconPapers)
JEL-codes: D82 G14 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:176:y:2018:i:c:p:118-157

DOI: 10.1016/j.jet.2018.03.007

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