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A portfolio game under asymmetric information

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  • Ma, Yue
  • Yan, Jingzhou

Abstract

This study examines the impact of information asymmetry and competition on portfolio decision-making in a financial markets. By constructing a game model incorporating information constraints and relative performance, we reveal how differences in investors’ information-processing capacities influence equilibrium strategies. Our analysis demonstrates that investment strategies are shaped not only by market conditions but also by competitive pressures. Specifically, when investors place greater emphasis on outperforming their competitors, they tend to allocate more wealth to risky assets, leading to more aggressive investment behavior. Furthermore, improvements in information-processing capacities enable investors to estimate relative wealth more accurately, optimize their investment decisions, and narrow the strategic gap with their competitors. This study also highlights the role of information asymmetry in competitive environments, illustrating how differences in information access and relative concern jointly shape equilibrium strategies. Ultimately, this paper provides new insights into behavioral factors influencing the financial markets, emphasizing the importance of reducing informational frictions to enhance market transparency and fairness.

Suggested Citation

  • Ma, Yue & Yan, Jingzhou, 2025. "A portfolio game under asymmetric information," Finance Research Letters, Elsevier, vol. 86(PE).
    • Handle: RePEc:eee:finlet:v:86:y:2025:i:pe:s1544612325019208
    DOI: 10.1016/j.frl.2025.108666
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G40 - Financial Economics - - Behavioral Finance - - - General
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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