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 InfoTo our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Bibliographic InfoPaper provided by European Science Foundation Network in Financial Markets, c/o C.E.P.R, 77 Bastwick Street, London EC1V 3PZ in its series CEPR Financial Markets Paper with number 0016.
Date of creation: Sep 1992
Date of revision:
Availability: in print
Contact details of provider:
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
Other versions of this item:
- Vives Xavier, 1995. "The Speed of Information Revelation in a Financial Market Mechanism," Journal of Economic Theory, Elsevier, vol. 67(1), pages 178-204, October.
- 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: ().
If references are entirely missing, you can add them using this form.