Business Intelligence

Information Aggregation In Dynamic Markets With Strategic Traders

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Executive Summary

This paper studies information aggregation in dynamic markets with a finite number of partially informed strategic traders. It shows that for a broad class of securities, information in such markets always gets aggregated. Trading takes place in a bounded time interval, and in every equilibrium, as time approaches the end of the interval, the market price of a "Separable" security converges in probability to its expected value conditional on the traders' pooled information. If the security is "Non-separable," then there exists a common prior over the states of the world and equilibrium such that information does not get aggregated.

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