This paper shows that information effects per se are not responsible for the Gi®en goods anomaly affecting competitive traders' demands in multi-asset, noisy rational expectations equilibrium models. The role that information plays in traders' strategies also matters. In a market with risk averse, uninformed traders, informed agents have a dual motive for trading: speculation and market making. While speculation entails using prices to assess the effect of private signal error terms, market making requires employing them to disentangle noise traders' effects in traders' aggregate orders. In a correlated environment, this complicates a trader's signal-extraction problem and may generate upward-sloping demand curves. Assuming either (i) that competitive, risk neutral market makers price the assets, or that (ii) the risk tolerance coefficient of uninformed traders grows without bound, removes the market making component from informed traders' demands, rendering them well behaved in prices.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number
97.
Length: Date of creation: 02 May 2003 Date of revision: Publication status: Published in Economic Theory, 2005, vol. 25, pages 983-997 Handle: RePEc:sef:csefwp:97
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.: