Reprint of: Information percolation in segmented markets

Darrell Duffie, Semyon Malamud and Gustavo Manso

Journal of Economic Theory, 2015, vol. 158, issue PB, 838-869

Abstract: We study equilibria of dynamic over-the-counter markets in which agents are distinguished by their preferences and information. Over time, agents are privately informed by bids and offers. Investors differ with respect to information quality, including initial information precision, and also in terms of market “connectivity,” the expected frequency of their bilateral trading opportunities. We characterize endogenous information acquisition and show how learning externalities affect information gathering incentives. More “liquid” markets lead to higher equilibrium information acquisition when the gains from trade and market duration are sufficiently large. On the other hand, for a small market duration, the opposite may occur if agents vary sufficiently in terms of their market connectivity.

Keywords: Over-the-counter markets; Information transmission; Learning; Search (search for similar items in EconPapers)
JEL-codes: C73 D44 D53 D83 G14 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:158:y:2015:i:pb:p:838-869

DOI: 10.1016/j.jet.2014.11.014

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