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Information sharing in a perfectly competitive market

Author

Listed:
  • Yang, Yaqing
  • Lou, Youcheng

Abstract

We consider a large rational expectations economy where traders can share information with each other via an information network and investigate the impact of network connectedness on market equilibrium outcomes. We find that in the equilibrium with endogenous information, increasing network connectedness increases the total information in the market and trading volume, improves market efficiency, and enhances liquidity if and only if the market is sufficiently informationally efficient. Additionally, we provide a necessary and sufficient condition on the monotonicity of traders’ welfare over network connectedness. We also show that the implications in the baseline model also hold for some extensions.

Suggested Citation

  • Yang, Yaqing & Lou, Youcheng, 2024. "Information sharing in a perfectly competitive market," The North American Journal of Economics and Finance, Elsevier, vol. 69(PA).
    • Handle: RePEc:eee:ecofin:v:69:y:2024:i:pa:s1062940823001389
    DOI: 10.1016/j.najef.2023.102015
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    More about this item

    Keywords

    Rational expectations equilibrium; Information sharing; Network connectedness; Welfare;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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