Information efficiency and financial stability
AbstractThe authors study a simple model of an asset market with informed and non-informed agents. In the absence of non-informed agents, the market becomes information efficient when the number of traders with different private information is large enough. Upon introducing non-informed agents, the authors find that the latter contribute significantly to the trading activity if and only if the market is (nearly) information efficient. This suggests that information efficiency might be a necessary condition for bubble phenomena-induced by the behavior of non-informed traders-or conversely that throwing some sands in the gears of financial markets may curb the occurrence of bubbles. --
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Bibliographic InfoArticle provided by Kiel Institute for the World Economy in its journal Economics: The Open-Access, Open-Assessment E-Journal.
Volume (Year): 4 (2010)
Issue (Month): 20 ()
Interacting agents models; market efficiency; market stability; statistical mechanics of financial markets;
Find related papers by JEL classification:
- G01 - Financial Economics - - General - - - Financial Crises
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
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