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Existence of an Equilibrium for Lower Semicontinuous Information Acquisition Functions

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Author Info

  • Agnes Bialecki

    (ENS LYON - École normale supérieure de Lyon - École Normale Supérieure (ENS) - Lyon)

  • Eleonore Haguet

    (ENSAE - École Nationale de la Statistique et de l'Administration Économique - ENSAE ParisTech)

  • Gabriel Turinici

    ()
    (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - CNRS : UMR7534 - Université Paris IX - Paris Dauphine)

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    Abstract

    We consider a two-period model in which a continuum of agents trade in a context of costly information acquisition and systematic heterogeneous expectations biases. Because of systematic biases agents are supposed not to learn from others' decisions. In a previous work under somehow strong technical assumptions a market equilibrium was proved to exist and the supply and demand functions were proved to be strictly monotonic with respect to the price. Here we extend these results under very weak technical assumptions. We also prove that the equilibrium price maximizes the trading volume and further additional properties (such as the antimonotonicity of the trading volume with respect to the marginal information price).

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    Bibliographic Info

    Paper provided by HAL in its series Post-Print with number hal-00723189.

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    Date of creation: 22 Apr 2014
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    Publication status: Published, Journal of Applied Mathematics, 2014, 2014, 268427
    Handle: RePEc:hal:journl:hal-00723189

    Note: View the original document on HAL open archive server: http://hal.archives-ouvertes.fr/hal-00723189
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    Web page: http://hal.archives-ouvertes.fr/

    Related research

    Keywords: information acquisition; heterogeneous beliefs; heterogeneous estimations; Grossman-Stiglitz paradox; costly information;

    This paper has been announced in the following NEP Reports:

    References

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    1. J. Bradford De Long & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, . "Noise Trader Risk in Financial Markets," J. Bradford De Long's Working Papers _124, University of California at Berkeley, Economics Department.
    2. Peng, Lin, 2005. "Learning with Information Capacity Constraints," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 40(02), pages 307-329, June.
    3. Varian, Hal R, 1985. " Divergence of Opinion in Complete Markets: A Note," Journal of Finance, American Finance Association, vol. 40(1), pages 309-17, March.
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    8. Sanford Grossman, 1978. "Further results on the informational efficiency of competitive stock markets," Special Studies Papers 114, Board of Governors of the Federal Reserve System (U.S.).
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    14. Wang, Jiang, 1994. "A Model of Competitive Stock Trading Volume," Journal of Political Economy, University of Chicago Press, vol. 102(1), pages 127-68, February.
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    16. Ko, K. Jeremy & (James) Huang, Zhijian, 2007. "Arrogance can be a virtue: Overconfidence, information acquisition, and market efficiency," Journal of Financial Economics, Elsevier, vol. 84(2), pages 529-560, May.
    17. Harris, Milton & Raviv, Artur, 1993. "Differences of Opinion Make a Horse Race," Review of Financial Studies, Society for Financial Studies, vol. 6(3), pages 473-506.
    18. Krebs, Tom, 2007. "Rational expectations equilibrium and the strategic choice of costly information," Journal of Mathematical Economics, Elsevier, vol. 43(5), pages 532-548, June.
    19. 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 573-85, May.
    20. Abarbanell, Jeffery S. & Lanen, William N. & Verrecchia, Robert E., 1995. "Analysts' forecasts as proxies for investor beliefs in empirical research," Journal of Accounting and Economics, Elsevier, vol. 20(1), pages 31-60, July.
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