Hierarchical information and the rate of information diffusion
AbstractThe rate of information diffusion and, consequently, price discovery are conditional not only upon 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 information hierarchies. The empirical investigation using transaction data on China's equity market supports that the information hierarchies decrease the speed of price discovery.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Dynamics and Control.
Volume (Year): 36 (2012)
Issue (Month): 9 ()
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Web page: http://www.elsevier.com/locate/jedc
Information hierarchies; Information diffusion rate; Price discovery; Momentum;
Other versions of this item:
- Yi Xue & Ramazan Gencay, 2009. "Hierarchical Information and the Rate of Information Diffusion," Working Paper Series 29_09, The Rimini Centre for Economic Analysis, revised Jan 2009.
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
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