Hierarchical Information and the Rate of Information Diffusion
AbstractThe rate of information diffusion and consequently price discovery, is conditional upon not only the design of the market microstructure, but also the informational structure. This paper presents a market microstructure model showing that an increasing number of information hierarchies among informed competitive traders leads to a slower information diffusion rate and informational inefficiency. The model illustrates that informed traders may prefer trading with each other rather than with noise traders in the presence of the information hierarchies. Furthermore, we show that momentum can be generated from the predictable patterns of noise traders, which are assumed to be a function of past prices
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Bibliographic InfoPaper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 29_09.
Date of creation: Jan 2009
Date of revision: Jan 2009
Information hierarchies; Information diffusion rate; Momentum;
Other versions of this item:
- Xue, Yi & Gençay, Ramazan, 2012. "Hierarchical information and the rate of information diffusion," Journal of Economic Dynamics and Control, Elsevier, vol. 36(9), pages 1372-1401.
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
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