Market Participation, Information and Volatility
Juan Dubra () and
Helios Herrera ()
No 206, Working Papers from Centro de Investigacion Economica, ITAM
We analyze how the entry of less informed participants in a market for a risky asset affects the volatility of the price of the asset. In an endogenous participation model, we show that in equilibrium the new market entrants are less informed than the rest of the participants. We study how volatility depends on market participation and on the level of information of the participants. The condition that guarantees that new market participation leads to increased asset price volatility, is that all investors are sufficiently risk-averse. In the increasing volatility case, a higher volatility is associated with a higher welfare for the new entrants.
Keywords: endogenous participation; volatility; information heterogeneity (search for similar items in EconPapers)
JEL-codes: G12 D40 C70 (search for similar items in EconPapers)
Pages: 23 pages
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed
Downloads: (external link)
http://ftp.itam.mx/pub/academico/inves/herrera/02-06.pdf First version, 2002 (application/pdf)
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:cie:wpaper:0206
Access Statistics for this paper
More papers in Working Papers from Centro de Investigacion Economica, ITAM Contact information at EDIRC.
Bibliographic data for series maintained by Diego Dominguez ().