The time cost of information in financial markets
Chad Kendall ()
Journal of Economic Theory, 2018, vol. 176, issue C, 118-157
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)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:176:y:2018:i:c:p:118-157
Access Statistics for this article
Journal of Economic Theory is currently edited by A. Lizzeri and K. Shell
More articles in Journal of Economic Theory from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().