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Information aggregation in financial markets with career concerns

Listed author(s):
  • Dasgupta, Amil
  • Prat, Andrea

What are the equilibrium features of a dynamic financial market in which traders care about their reputation for ability? We modify a standard sequential trading model to include traders with career concerns. We show that this market cannot be informationally efficient: there is no equilibrium in which prices converge to the true value, even after an infinite sequence of trades. We characterize the most revealing equilibrium of this game and show that an increase in the strength of the traders' reputational concerns has a negative effect on the extent of information that can be revealed in equilibrium but a positive effect on market liquidity.

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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 143 (2008)
Issue (Month): 1 (November)
Pages: 83-113

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Handle: RePEc:eee:jetheo:v:143:y:2008:i:1:p:83-113
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

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  18. Dasgupta, Amil & Prat, Andrea & Verardo, Michela, 2007. "Institutional Trade Persistence and Long-Term Equity Returns," CEPR Discussion Papers 6374, C.E.P.R. Discussion Papers.
  19. James Dow & Gary Gorton, 1994. "Noise Trading, Delegated Portfolio Management, and Economic Welfare," Center for Financial Institutions Working Papers 95-10, Wharton School Center for Financial Institutions, University of Pennsylvania.
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