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Asymmetric information in a competitive market game: Reexamining the implications of rational expectations

Listed author(s):
  • James Peck

    ()

    (Department of Economics, The Ohio State University, 1945 N. High Street, Columbus, OH 43210-1172, USA)

  • Matthew O. Jackson

    ()

    (Division of Humanities and Social Sciences 228-77, Caltech, Pasadena, CA 91125, USA)

We examine price formation in a simple static model with asymmetric information, an infinite number of risk neutral traders and no noise traders. Here we re-examine four results associated with rational expectations models relating to the existence of fully revealing equilibrium prices, the advantage of becoming informed, the costly acquisition of information, and the impossibility of having equilibrium prices with higher volatility than the underlying fundamentals.

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Article provided by Springer & Society for the Advancement of Economic Theory (SAET) in its journal Economic Theory.

Volume (Year): 13 (1999)
Issue (Month): 3 ()
Pages: 603-628

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Handle: RePEc:spr:joecth:v:13:y:1999:i:3:p:603-628
Note: Received: August 27, 1997; revised version: February 11, 1998
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Web page: http://saet.uiowa.edu/

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  8. Paul Milgrom & Nancy L.Stokey, 1979. "Information, Trade, and Common Knowledge," Discussion Papers 377R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  9. Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
  10. Azariadis, Costas, 1981. "Self-fulfilling prophecies," Journal of Economic Theory, Elsevier, vol. 25(3), pages 380-396, December.
  11. Matthew O. Jackson & James Peck, 1993. "Costly Information Acquisition," Discussion Papers 1087, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  12. S. Grossman & R. Shiller, "undated". "The Determinants of the Variability of Stock Market Price," Rodney L. White Center for Financial Research Working Papers 18-80, Wharton School Rodney L. White Center for Financial Research.
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  20. Martin Shubik, 1977. "A Theory of Money and Financial Institutions," Cowles Foundation Discussion Papers 462, Cowles Foundation for Research in Economics, Yale University.
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  22. Jiang Wang, 1993. "A Model of Intertemporal Asset Prices Under Asymmetric Information," Review of Economic Studies, Oxford University Press, vol. 60(2), pages 249-282.
  23. Robert Wilson, 1977. "A Bidding Model of Perfect Competition," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 511-518.
  24. Milgrom, Paul R, 1979. "A Convergence Theorem for Competitive Bidding with Differential Information," Econometrica, Econometric Society, vol. 47(3), pages 679-688, May.
  25. Shapley, Lloyd S & Shubik, Martin, 1977. "Trade Using One Commodity as a Means of Payment," Journal of Political Economy, University of Chicago Press, vol. 85(5), pages 937-968, October.
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  28. James Peck & Karl Shell, 1991. "Market Uncertainty: Correlated and Sunspot Equilibria in Imperfectly Competitive Economies," Review of Economic Studies, Oxford University Press, vol. 58(5), pages 1011-1029.
  29. Albert S. Kyle, 1989. "Informed Speculation with Imperfect Competition," Review of Economic Studies, Oxford University Press, vol. 56(3), pages 317-355.
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