Information aggregation in a financial market with general signal structure
Duan Li and
Journal of Economic Theory, 2019, vol. 183, issue C, 594-624
We study a financial market with asymmetric, multidimensional trader signals that have general correlation structure. Each of a continuum of traders belongs to one of finitely many “information groups.” There is a multidimensional aggregate signal for each group. Each trader observes an idiosyncratic signal about the fundamental, built from this group signal. Correlations across group signals are arbitrary. Several existing models serve as special cases, and new applications become possible. We establish existence and regularity of linear equilibrium, and demonstrate that the equilibrium price aggregates information perfectly as noise trade vanishes.
Keywords: Multidimensional signals; Asymmetric information; Information aggregation; Rational expectations equilibrium (search for similar items in EconPapers)
JEL-codes: D82 G14 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:183:y:2019:i:c:p:594-624
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