An equilibrium trading volume model in presence of heterogeneous biased estimations and information acquisition costs
AbstractWe consider a two period model in which a continuum of agents trade in a context of costly information acquisition and systematic heterogeneous expectations biases. We show that under very weak technical assumptions a market equilibrium exists and the supply and demand functions are strictly monotonic with respect to the price. The equilibrium price is also shown to be the price that maximizes the trading volume. We prove additional properties such as the anti-monotony of the trading volume with respect to the marginal information price.
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Date of creation: 08 Aug 2012
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information acquisition; heterogeneous beliefs; heterogeneous estimations; Grossman-Stiglitz paradox; costly information;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-08-23 (All new papers)
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