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Information Percolation

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  • Gustavo Manso

    (Massachusetts Institute of Technology)

  • Gaston Giroux

    (Unaffiliated)

  • Darrell Duffie

    (Stanford University)

Abstract

We study information percolation in a stylized over-the-counter market in which a large set of asymmetrically informed investors meet in small groups over time, exchanging information with their counterparties when matched, through for example their bids for an asset. We provide an explicit solution for the dynamic evolution of the cross-sectional distribution of posterior beliefs regarding the asset payoff. We calculate the rate of convergence of the cross-sectional distribution of beliefs to a common posterior. We show that this convergence rate does not depend on the size of the groups of investors that meet. The convergence rate is merely the mean aggregate meeting rate of the investor population.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2008 Meeting Papers with number 471.

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Date of creation: 2008
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Handle: RePEc:red:sed008:471

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Cited by:
  1. Darrell DUFFIE & Semyon MALAMUD & Gustavo MANSO, 2010. "Information Percolation in Segmented Markets," Swiss Finance Institute Research Paper Series 10-09, Swiss Finance Institute.
  2. Rosenthal, Dale W.R. & Thomas, Nordia Diana Marie, 2012. "Transact taxes in a price maker/taker market," MPRA Paper 40556, University Library of Munich, Germany.
  3. Alain B\'elanger & Gaston Giroux, 2012. "Information Percolation: Some General Cases with an Application to Econophysics," Papers 1202.5251, arXiv.org.

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