Advanced Search
MyIDEAS: Login

Noise and aggregation of information in large markets

Contents:

Author Info

  • Diego García
  • Branko Urosevic
Registered author(s):

    Abstract

    We study a novel class of noisy rational expectations equilibria in markets with large number of agents. We show that, as long as noise increases with the number of agents in the economy, the limiting competitive equilibrium is well-defined and leads to non-trivial information acquisition, perfect information aggregation, and partially revealing prices, even if per capita noise tends to zero. We find that in such equilibrium risk sharing and price revelation play di erent roles than in the standard limiting economy in which per capita noise is not negligible. We apply our model to study information sales by a monopolist, information acquisition in multi-asset markets, and derivatives trading. The limiting equilibria are shown to be perfectly competitive, even when a strategic solution concept is used.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. 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.
    File URL: http://www.econ.upf.edu/docs/papers/downloads/785.pdf
    File Function: Whole Paper
    Download Restriction: no

    Bibliographic Info

    Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 785.

    as in new window
    Length:
    Date of creation: Oct 2004
    Date of revision:
    Handle: RePEc:upf:upfgen:785

    Contact details of provider:
    Web page: http://www.econ.upf.edu/

    Related research

    Keywords: Partially revealing equilibria; competitive equilibrium; rational expectations; information acquisition; markets for information; derivatives trading; multi-asset markets; share auctions;

    Find related papers by JEL classification:

    This paper has been announced in the following NEP Reports:

    References

    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.:
    as in new window
    1. Matthew O. Jackson, 2002. "Efficiency and Information Aggregation in Auctions with Costly Information," Microeconomics 0211012, EconWPA.
    2. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November.
    3. Admati, Anat R, 1985. "A Noisy Rational Expectations Equilibrium for Multi-asset Securities Markets," Econometrica, Econometric Society, vol. 53(3), pages 629-57, May.
    4. Jackson, Matthew O. & Kremer, Ilan, 2004. "The relationship between the allocation of goods and a seller's revenue," Journal of Mathematical Economics, Elsevier, vol. 40(3-4), pages 371-392, June.
    5. Swinkels, Jeroen M, 1999. "Asymptotic Efficiency for Discriminatory Private Value Auctions," Review of Economic Studies, Wiley Blackwell, vol. 66(3), pages 509-28, July.
    6. Demange Gabrielle & Laroque Guy, 1995. "Private Information and the Design of Securities," Journal of Economic Theory, Elsevier, vol. 65(1), pages 233-257, February.
    7. Cao, H Henry, 1999. "The Effect of Derivative Assets on Information Acquisition and Price Behavior in a Rational Expectations Equilibrium," Review of Financial Studies, Society for Financial Studies, vol. 12(1), pages 131-63.
    8. Alan Morrison & Nir Vulkan, 2003. "Making Money out of Publicly Available Information," OFRC Working Papers Series 2003fe07, Oxford Financial Research Centre.
    9. Verrecchia, Robert E., 2001. "Essays on disclosure," Journal of Accounting and Economics, Elsevier, vol. 32(1-3), pages 97-180, December.
    10. John Y. Campbell & Sanford J. Grossman & Jiang Wang, 1992. "Trading Volume and Serial Correlation in Stock Returns," NBER Working Papers 4193, National Bureau of Economic Research, Inc.
    11. Brennan, Michael J & Cao, H Henry, 1996. "Information, Trade, and Derivative Securities," Review of Financial Studies, Society for Financial Studies, vol. 9(1), pages 163-208.
    12. Ausubel, Lawrence M, 1990. "Insider Trading in a Rational Expectations Economy," American Economic Review, American Economic Association, vol. 80(5), pages 1022-41, December.
    13. Vives, Xavier, 1988. "Aggregation of Information in Large Cournot Markets," Econometrica, Econometric Society, vol. 56(4), pages 851-76, July.
    14. Wolfgang Pesendorfer & Jeroen M. Swinkels, 1995. "The Loser's Curse and Information Aggregation in Common Value Auctions," Discussion Papers 1147, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    15. Admati, Anat R. & Pfleiderer, Paul, 1986. "A monopolistic market for information," Journal of Economic Theory, Elsevier, vol. 39(2), pages 400-438, August.
    16. Sanford J Grossman & Joseph E Stiglitz, 1997. "On the Impossibility of Informationally Efficient Markets," Levine's Working Paper Archive 1908, David K. Levine.
    17. Wilson, Robert, 1977. "A Bidding Model of Perfect Competition," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 511-18, October.
    18. S. Viswanathan & James J.D. Wang, 2004. "Optimal Bidding in Multi-Unit Discriminatory Auctions: Two Bidders," Econometric Society 2004 North American Winter Meetings 58, Econometric Society.
    19. Rahi, Rohit, 1996. "Adverse Selection and Security Design," Review of Economic Studies, Wiley Blackwell, vol. 63(2), pages 287-300, April.
    20. Back, Kerry & Zender, Jaime F, 1993. "Auctions of Divisible Goods: On the Rationale for the Treasury Experiment," Review of Financial Studies, Society for Financial Studies, vol. 6(4), pages 733-64.
    21. Diamond, Douglas W. & Verrecchia, Robert E., 1981. "Information aggregation in a noisy rational expectations economy," Journal of Financial Economics, Elsevier, vol. 9(3), pages 221-235, September.
    22. Milgrom, Paul R, 1979. "A Convergence Theorem for Competitive Bidding with Differential Information," Econometrica, Econometric Society, vol. 47(3), pages 679-88, May.
    23. Hong, Han & Shum, Matthew, 2004. "Rates of information aggregation in common value auctions," Journal of Economic Theory, Elsevier, vol. 116(1), pages 1-40, May.
    24. Duffie Darrell & Rahi Rohit, 1995. "Financial Market Innovation and Security Design: An Introduction," Journal of Economic Theory, Elsevier, vol. 65(1), pages 1-42, February.
    25. Verrecchia, Robert E, 1982. "Information Acquisition in a Noisy Rational Expectations Economy," Econometrica, Econometric Society, vol. 50(6), pages 1415-30, November.
    26. Hellwig, Martin F., 1980. "On the aggregation of information in competitive markets," Journal of Economic Theory, Elsevier, vol. 22(3), pages 477-498, June.
    27. Diamond, Douglas W, 1985. " Optimal Release of Information by Firms," Journal of Finance, American Finance Association, vol. 40(4), pages 1071-94, September.
    28. DeMarzo, Peter & Skiadas, Costis, 1998. "Aggregation, Determinacy, and Informational Efficiency for a Class of Economies with Asymmetric Information," Journal of Economic Theory, Elsevier, vol. 80(1), pages 123-152, May.
    29. Ilan Kremer, 2002. "Information Aggregation in Common Value Auctions," Econometrica, Econometric Society, vol. 70(4), pages 1675-1682, July.
    30. Wang, Jiang, 1993. "A Model of Intertemporal Asset Prices under Asymmetric Information," Review of Economic Studies, Wiley Blackwell, vol. 60(2), pages 249-82, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:upf:upfgen:785. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.