The Speed of Information Revelation in a Financial Market Mechanism
AbstractSuppose that information about the value of a risky asset is dispersed among many agents in the economy. The paper studies the rate at which successive price quotations from competitive market makers, which reflect the desired (notional) trades of risk- averse informed agents, reveal the value of the asset. The situation considered is akin to the real-time dissemination of theoretical prices in the opening batch auction of some continuous stock trading systems. The issue is studied in the context of an information t tonnement process in which informed agents submit market orders to market makers who quote prices efficiently. Informed agents in turn revise their estimates of the value of the asset and resubmit orders. The equilibrium of the t tonnement is fully characterized and it is found that price quotations converge to the underlying value of the asset at a rate of n-1/2, where n is the number of rounds of the t tonnement, and have an asymptotic precision negatively related to the degree of risk aversion, the noisiness of private signals and the amount of noise in the system. The analysis makes clear the role of competitive market makers: by increasing the depth of the market as the number of rounds increase they induce insiders to respond more to their information and speed up convergence. In fact, in markets in which depth is exogenously fixed, convergence is slow. The approach used allows also the study of the comparative dynamic properties of equilibria, such as the
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Theory.
Volume (Year): 67 (1995)
Issue (Month): 1 (October)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/622869
Other versions of this item:
- Xavier Vives, 1992. "The Speed of Information Revelation in a Financial Market Mechanism," CEPR Financial Markets Paper 0016, European Science Foundation Network in Financial Markets, c/o C.E.P.R, 77 Bastwick Street, London EC1V 3PZ.
- Vives, X., 1992. "The Speed of Information Revelation in a Financial Market Mechanism," UFAE and IAE Working Papers 174.92, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.