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Competitive Markets and Aggregate Information

Author

Listed:
  • G. Glenn Baigent

    (Department of Finance, Long Island University)

Abstract

This paper shows that a competitive market structure is identically efficient to a Walrasian rational expectations market when risk-averse agents base trades only on unbiased private signals. Because price reflects the complete set of market information, it is a sufficient statistic. The economic role of competing market makers is thus to aggregate information efficiently.

Suggested Citation

  • G. Glenn Baigent, 2003. "Competitive Markets and Aggregate Information," Eastern Economic Journal, Eastern Economic Association, vol. 29(4), pages 593-606, Fall.
    • Handle: RePEc:eej:eeconj:v:29:y:2003:i:4:p:593-606
    as

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    File URL: http://web.holycross.edu/RePEc/eej/Archive/Volume29/V29N4P593_606.pdf
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    References listed on IDEAS

    as
    1. Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
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    4. Barberis, Nicholas & Shleifer, Andrei & Vishny, Robert, 1998. "A model of investor sentiment," Journal of Financial Economics, Elsevier, vol. 49(3), pages 307-343, September.
    5. David Hirshleifer, 2001. "Investor Psychology and Asset Pricing," Journal of Finance, American Finance Association, vol. 56(4), pages 1533-1597, August.
    6. Anat R. Admati, Paul Pfleiderer, 1988. "A Theory of Intraday Patterns: Volume and Price Variability," Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 3-40.
    7. Fama, Eugene F, 1991. "Efficient Capital Markets: II," Journal of Finance, American Finance Association, vol. 46(5), pages 1575-1617, December.
    8. Grossman, Sanford J, 1976. "On the Efficiency of Competitive Stock Markets Where Trades Have Diverse Information," Journal of Finance, American Finance Association, vol. 31(2), pages 573-585, May.
    9. De Bondt, Werner F M & Thaler, Richard, 1985. "Does the Stock Market Overreact?," Journal of Finance, American Finance Association, vol. 40(3), pages 793-805, July.
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    More about this item

    Keywords

    Market Structure;

    JEL classification:

    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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