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Liquidity runs with endogenous information acquisition

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  • Sanne Zwart

Abstract

This paper discusses a liquidity run model where investors optimally decide whether or not to acquire private information. This endogenizes the dichotomy "private information/no private information". The price of the information makes the equilibrium partitioning of the fundamentals two dimensional. For intermediate fundamentals multiplicity can be eliminated by the private information that investors can have. The dichotomy represents the information structures for low and high prices respectively. However, it presents a distorted view for intermediate prices and fundamentals for which unique equilibria without private information can occur. These results are preserved if the quality of the information is endogenized.

Suggested Citation

  • Sanne Zwart, 2005. "Liquidity runs with endogenous information acquisition," Economics Working Papers ECO2005/18, European University Institute.
  • Handle: RePEc:eui:euiwps:eco2005/18
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    References listed on IDEAS

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    More about this item

    Keywords

    Bank runs; information acquisition; coordination games;

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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