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Investment dynamics with common and private values

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  • Levin, Dan
  • Peck, James

Abstract

We study a dynamic investment game with two-dimensional signals, where each firm observes its continuously distributed idiosyncratic cost of investment and a discrete signal correlated with common investment returns. We demonstrate that the one-step property holds and provide an equilibrium existence/characterization result. "Reversals" are possible, where a large number of firms investing in a given round becomes bad news about investment returns. Welfare is compared to static and rigid-timing benchmarks, and computed for large economies.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 143 (2008)
Issue (Month): 1 (November)
Pages: 114-139

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Handle: RePEc:eee:jetheo:v:143:y:2008:i:1:p:114-139

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Web page: http://www.elsevier.com/locate/inca/622869

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Keywords: Endogenous timing Herding Reversal Multi-dimensional signals;

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Citations

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Cited by:
  1. Meub, Lukas & Proeger, Till & Hüning, Hendrik, 2013. "A comparison of endogenous and exogenous timing in a social learning experiment," Center for European, Governance and Economic Development Research Discussion Papers 167, University of Goettingen, Department of Economics.
  2. Ivanov, Asen & Levin, Dan & Peck, James, 2013. "Behavioral biases in endogenous-timing herding games: An experimental study," Journal of Economic Behavior & Organization, Elsevier, vol. 87(C), pages 25-34.
  3. Huanxing Yang, 2010. "Information aggregation and investment cycles with strategic complementarity," Economic Theory, Springer, vol. 43(2), pages 281-311, May.
  4. Pastine, Tuvana, 2005. "Social Learning in Continuous Time: When are Informational Cascades More Likely to be Inefficient?," CEPR Discussion Papers 5120, C.E.P.R. Discussion Papers.
  5. Asen Ivanov & Dan Levin & James Peck, 2009. "Hindsight, Foresight, and Insight: An Experimental Study of a Small-Market Investment Game with Common and Private Values," American Economic Review, American Economic Association, vol. 99(4), pages 1484-1507, September.
  6. Heidhues, Paul & Melissas, Nicolas, 2012. "Rational exuberance," European Economic Review, Elsevier, vol. 56(6), pages 1220-1240.
  7. Park, Andreas & Sgroi, Daniel, 2012. "Herding, contrarianism and delay in financial market trading," European Economic Review, Elsevier, vol. 56(6), pages 1020-1037.
  8. Andreas Park & Daniel Sgroi, 2008. "Herding and Contrarianism in a Financial Trading Experiment with Endogenous Timing," Working Papers tecipa-341, University of Toronto, Department of Economics.
  9. Levin, Dan & Peck, James & Ye, Lixin, 2007. "Bad news can be good news: Early dropouts in an English auction with multi-dimensional signals," Economics Letters, Elsevier, vol. 95(3), pages 462-467, June.
  10. Asen Ivanov & Dan Levin & James Peck, 2010. "Behavioral Biases, Informational Externalities, and Efficiency in Endogenous-Timing Herding Games: an Experimental Study," Working Papers 1004, VCU School of Business, Department of Economics.
  11. Murto, Pauli & Välimäki, Juuso, 2013. "Delay and information aggregation in stopping games with private information," Journal of Economic Theory, Elsevier, vol. 148(6), pages 2404-2435.

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