The dynamics of strategic information flows in stock markets

Abstract. We present a model of a stock market in which informed speculators continually receive new information about multiple stocks. They must decide how quickly to trade on their information, taking account that their trades will inform their rivals via price movements; symmetrically, they make use of the information in prices, not only of the stocks they are trading directly, but of other stocks as well. The presence of multiple assets speeds information release by providing more channels for market makers to acquire information and incorporate that information in prices. The result is not only that profits are reduced in multi-asset settings, but that information release tilts dramatically toward new information relative to old information, reducing the profits that can be acquired by privately-informed speculators.