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Asymmetric information and survival in financial markets

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  • Emanuela Sciubba

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Abstract

In the evolutionary setting for a financial market developed by Blume and Easley (1992), we consider an infinitely repeated version of a model á la Grossman and Stiglitz (1980) with asymmetrically informed traders. Informed traders observe the realisation of a payoff relevant signal before making their portfolio decisions. Uninformed traders do not have direct access to this kind of information, but can partially infer it from market prices. As a counterpart for their privileged information, informed traders pay a per period cost. As a result, information acquisition triggers a trade-off in our setting. We prove that, so long as information is costly, uninformed traders survive. Copyright Springer-Verlag Berlin/Heidelberg 2005

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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 25 (2005)
Issue (Month): 2 (02)
Pages: 353-379

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Handle: RePEc:spr:joecth:v:25:y:2005:i:2:p:353-379

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Keywords: Asymmetric information; Evolution; Portfolio rules.;

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References

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Citations

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Cited by:
  1. David Goldbaum, 2003. "Profitable technical trading rules as a source of price instability," Quantitative Finance, Taylor & Francis Journals, vol. 3(3), pages 220-229.
  2. Mariano Croce & Riccardo Colacito, 2009. "Risk sensitive allocations with multiple goods in international finance. Existence, survivorship, and dynamics," 2009 Meeting Papers 1201, Society for Economic Dynamics.
  3. Tarek Coury & Emanuela Sciubba, 2012. "Belief heterogeneity and survival in incomplete markets," Economic Theory, Springer, vol. 49(1), pages 37-58, January.
  4. Hongjun Yan, 2008. "Natural Selection in Financial Markets: Does it Work?," Yale School of Management Working Papers amz2648, Yale School of Management, revised 01 May 2008.
  5. Luo, Guo Ying, 2012. "Conservative traders, natural selection and market efficiency," Journal of Economic Theory, Elsevier, vol. 147(1), pages 310-335.
  6. David Goldbaum, 2013. "Learning and Adaptation as a Source of Market Failure," Working Paper Series 14, Economics Discipline Group, UTS Business School, University of Technology, Sydney.
  7. Rabah Amir & Igor Evstigneev & Klaus Schenk-Hoppé, 2013. "Asset market games of survival: a synthesis of evolutionary and dynamic games," Annals of Finance, Springer, vol. 9(2), pages 121-144, May.

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