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Asymmetric information and survival in financial markets

  • Emanuela Sciubba

    ()

In the evolutionary setting for a financial market developed by Blume and Easley (1992), we consider an infinitely repeated version of a model á la Grossman and Stiglitz (1980) with asymmetrically informed traders. Informed traders observe the realisation of a payoff relevant signal before making their portfolio decisions. Uninformed traders do not have direct access to this kind of information, but can partially infer it from market prices. As a counterpart for their privileged information, informed traders pay a per period cost. As a result, information acquisition triggers a trade-off in our setting. We prove that, so long as information is costly, uninformed traders survive. Copyright Springer-Verlag Berlin/Heidelberg 2005

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File URL: http://hdl.handle.net/10.1007/s00199-003-0434-8
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Article provided by Society for the Advancement of Economic Theory (SAET) in its journal Economic Theory.

Volume (Year): 25 (2005)
Issue (Month): 2 (02)
Pages: 353-379

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Handle: RePEc:spr:joecth:v:25:y:2005:i:2:p:353-379
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