Competition and Information Production in Market Maker Models

Alan D. Morrison

Journal of Business Finance & Accounting, 2004, vol. 31, issue 7‐8, 1171-1190

Abstract: Abstract: The microstructure literature models the mechanisms through which fundamental information is incorporated into market prices. This paper extends previous models by endogenising information production and analysing incentives for costly information production. In contrast to the existing literature, increasing the number of informed traders can result in reduced price informativeness. When prices have an allocative role this has welfare consequences: the regulatory implications of a dichotomy between private and public incentives for information gathering are discussed.

Date: 2004
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https://doi.org/10.1111/j.0306-686X.2004.00571.x

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