Academic Commons

Reports

Information Aggregation and Strategic Trading in Speculative Markets

Dutta, Prajit Kumar

This paper examines the process by which private information is impounded in security prices in a market where some traders are consistently better informed about short-run asset values. We analyze equilibria where traders can adopt general non-cooperative strategies, and characterize the 'best' attainable equilibrium. Trading strategies in this equilibrium are nonlinear functions of information signals and exhibit history dependence. In contrast to previous papers, competition among informed traders need not lead to rapid revelation of private information. Although the volatility of fundamental prices is constant, transaction prices may exhibit time-varying volatility. Finally, in contrast to linear models, the degree to which prices impound private information depends on the signal itself.

Subjects

Files

More About This Work

Academic Units
Economics
Publisher
Department of Economics, Columbia University
Series
Department of Economics Discussion Papers, 665
Published Here
February 17, 2011

Notes

December 1992.

Academic Commons provides global access to research and scholarship produced at Columbia University, Barnard College, Teachers College, Union Theological Seminary and Jewish Theological Seminary. Academic Commons is managed by the Columbia University Libraries.