Hierarchical Information and the Rate of Information Diffusion

Yi Xue () and Ramazan Gencay

Working Paper series from Rimini Centre for Economic Analysis

Abstract: The rate of information diffusion and consequently price discovery, is conditional upon not only the design of the market microstructure, but also the informational structure. This paper presents a market microstructure model showing that an increasing number of information hierarchies among informed competitive traders leads to a slower information diffusion rate and informational inefficiency. The model illustrates that informed traders may prefer trading with each other rather than with noise traders in the presence of the information hierarchies. Furthermore, we show that momentum can be generated from the predictable patterns of noise traders, which are assumed to be a function of past prices.

Keywords: Information hierarchies; Information diffusion rate; Momentum (search for similar items in EconPapers)
JEL-codes: D43 D82 G10 G11 (search for similar items in EconPapers)
Date: 2009-01
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http://www.rcea.org/RePEc/pdf/wp29_09.pdf

Related works:
Journal Article: Hierarchical information and the rate of information diffusion (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:rim:rimwps:29_09

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