Bounded private information and aggregate information in financial markets
نویسنده
چکیده
This study presents two models of a financial market with CARA agents, binary signals as private information, noise traders and market-makers. In the first model, the fundamental value of the asset is related to the mass of agents able to participate in the market; in the second, the aggregate state defines both the fundamental value of the asset and the precision of private informations. In both models, the positive relation between the order flow and the information conveyed by the market generates strategic complementarity between agents’ trades because of risk-aversion. Multiple equilibria may arise with different levels of information.
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