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Information Percolation in Segmented Markets

Listed author(s):
  • Darrell DUFFIE

    (Graduate School of Business, Stanford University and NBER)

  • Semyon MALAMUD

    (EPFL and Swiss Finance Institute)

  • Gustavo MANSO

    (Sloan School of Business, MIT)

We calculate equilibria of dynamic double-auction markets in which agents are distinguished by their preferences and information. Over time, agents are privately informed by bids and offers. Investors are segmented into groups that differ with respect to characteristics determining information quality, including initial infor- mation precision as well as market \connectivity," the expected frequency of their trading opportunities. Investors with superior information sources attain higher expected profits, provided their counterparties are unable to observe the qual- ity of those sources. If, however, the quality of bidders' information sources are commonly observable, then, under conditions, investors with superior information sources have lower expected profits.

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File URL: http://ssrn.com/abstract=1566964
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Paper provided by Swiss Finance Institute in its series Swiss Finance Institute Research Paper Series with number 10-09.

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Length: 86 pages
Date of creation: Mar 2010
Handle: RePEc:chf:rpseri:rp1009
Contact details of provider: Web page: http://www.SwissFinanceInstitute.ch

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