Information acquisition, price informativeness and welfare

Rahi, Rohit ORCID: 0000-0001-6887-9160 and Zigrand, Jean-Pierre ORCID: 0000-0002-7784-4231 (2018) Information acquisition, price informativeness and welfare. Systemic Risk Centre Discussion Papers (77). Systemic Risk Centre, The London School of Economics and Political Science, London, UK.

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Abstract

We consider the market for a risky asset with heterogeneous valuations. Private information that agents have about their own valuation is reflected in the equilibrium price. We study the learning externalities that arise in this setting, and in particular their implications for price informativeness and welfare. When private signals are noisy, so that agents rely more on the information conveyed by prices, discouraging information gathering may be Pareto improving. Complementarities in information acquisition can lead to multiple equilibria.

Item Type:	Monograph (Discussion Paper)
Official URL:	https://www.systemicrisk.ac.uk/
Additional Information:	© 2018 The Authors
Divisions:	Finance
Subjects:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HG Finance
JEL classification:	D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency; Event Studies
Date Deposited:	31 May 2023 13:30
Last Modified:	01 Oct 2024 04:04
URI:	http://eprints.lse.ac.uk/id/eprint/118935

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