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Complementarities, Multiplicity, and Supply Information

Jayant Ganguli and Liyan Yang

Journal of the European Economic Association, 2009, vol. 7, issue 1, 90-115

Abstract: If traders can obtain private information about the payoff and the supply of a stock then there can exist (i) complementarity in information acquisition and (ii) multiple equilibria in the financial and information markets. The additional dimension of supply information increases coordination possibilities in the financial market, leading to multiple equilibria. The existence of two information sources can lead to information acquisition being complementary. The multiplicity of equilibria is suggestive of excess volatility and crashes. The different financial market equilibria imply differing patterns of cost of capital and volume of trade. (JEL: D82, D83, G14) (c) 2009 by the European Economic Association.

JEL-codes: D82 D83 G14 (search for similar items in EconPapers)
Date: 2009
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Journal of the European Economic Association is currently edited by Xavier Vives, George-Marios Angeletos, Orazio P. Attanasio, Fabio Canova and Roberto Perotti

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