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Information acquisition, price informativeness, and welfare

Rahi, Rohit and Zigrand, Jean-Pierre (2018) Information acquisition, price informativeness, and welfare. Journal of Economic Theory, 177. pp. 558-593. ISSN 1095-7235

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Identification Number: 10.1016/j.jet.2018.07.007

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: Article
Official URL: https://www.sciencedirect.com/journal/journal-of-e...
Additional Information: © 2018 The Authors
Divisions: Finance
Subjects: H Social Sciences > HB Economic Theory
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
Sets: Departments > Finance
Date Deposited: 23 Jul 2018 08:57
Last Modified: 07 Mar 2019 13:18
Projects: ES/K002309/1
Funders: Economic and Social Research Council
URI: http://eprints.lse.ac.uk/id/eprint/89385

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