Nothing Special   »   [go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/chf/rpseri/rp1009.html
   My bibliography  Save this paper

Information Percolation in Segmented Markets

Author

Listed:
  • Darrell DUFFIE

    (Graduate School of Business, Stanford University and NBER)

  • Semyon MALAMUD

    (EPFL and Swiss Finance Institute)

  • Gustavo MANSO

    (Sloan School of Business, MIT)

Abstract
We calculate equilibria of dynamic double-auction markets in which agents are distinguished by their preferences and information. Over time, agents are privately informed by bids and offers. Investors are segmented into groups that differ with respect to characteristics determining information quality, including initial infor- mation precision as well as market \connectivity," the expected frequency of their trading opportunities. Investors with superior information sources attain higher expected profits, provided their counterparties are unable to observe the qual- ity of those sources. If, however, the quality of bidders' information sources are commonly observable, then, under conditions, investors with superior information sources have lower expected profits.

Suggested Citation

  • Darrell DUFFIE & Semyon MALAMUD & Gustavo MANSO, 2010. "Information Percolation in Segmented Markets," Swiss Finance Institute Research Paper Series 10-09, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp1009
    as

    Download full text from publisher

    File URL: http://ssrn.com/abstract=1566964
    Download Restriction: no
    File URL:
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Xavier Vives, 2011. "Strategic Supply Function Competition With Private Information," Econometrica, Econometric Society, vol. 79(6), pages 1919-1966, November.
    2. Duffie, Darrell & Malamud, Semyon & Manso, Gustavo, 2014. "Information percolation in segmented markets," Journal of Economic Theory, Elsevier, vol. 153(C), pages 1-32.
    3. Manuel Amador & Pierre-Olivier Weill, 2010. "Learning from Prices: Public Communication and Welfare," Journal of Political Economy, University of Chicago Press, vol. 118(5), pages 866-907.
    4. Gadi Barlevy & Pietro Veronesi, 2000. "Information Acquisition in Financial Markets," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 67(1), pages 79-90.
    5. Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
    6. Darrell Duffie & Gaston Giroux & Gustavo Manso, 2010. "Information Percolation," American Economic Journal: Microeconomics, American Economic Association, vol. 2(1), pages 100-111, February.
    7. Xavier Vives, 1993. "How Fast do Rational Agents Learn?," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 60(2), pages 329-347.
    8. Milgrom, Paul & Stokey, Nancy, 1982. "Information, trade and common knowledge," Journal of Economic Theory, Elsevier, vol. 26(1), pages 17-27, February.
    9. Daron Acemoglu & Munther A. Dahleh & Ilan Lobel & Asuman Ozdaglar, 2011. "Bayesian Learning in Social Networks," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 78(4), pages 1201-1236.
    10. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October.
    11. Banerjee, Abhijit & Fudenberg, Drew, 2004. "Word-of-mouth learning," Games and Economic Behavior, Elsevier, vol. 46(1), pages 1-22, January.
    12. Mikhail Golosov & Guido Lorenzoni & Aleh Tsyvinski, 2014. "Decentralized Trading With Private Information," Econometrica, Econometric Society, vol. 82(3), pages 1055-1091, May.
    13. Hirshleifer, Jack, 1971. "The Private and Social Value of Information and the Reward to Inventive Activity," American Economic Review, American Economic Association, vol. 61(4), pages 561-574, September.
    14. Sun, Yeneng, 2006. "The exact law of large numbers via Fubini extension and characterization of insurable risks," Journal of Economic Theory, Elsevier, vol. 126(1), pages 31-69, January.
    15. Luca Colombo & Gianluca Femminis & Alessandro Pavan, 2014. "Information Acquisition and Welfare," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 81(4), pages 1438-1483.
    16. Kalyan Chatterjee & William Samuelson, 1983. "Bargaining under Incomplete Information," Operations Research, INFORMS, vol. 31(5), pages 835-851, October.
    17. Darrell Duffie & Semyon Malamud & Gustavo Manso, 2009. "Information Percolation With Equilibrium Search Dynamics," Econometrica, Econometric Society, vol. 77(5), pages 1513-1574, September.
    18. Chamley,Christophe P., 2004. "Rational Herds," Cambridge Books, Cambridge University Press, number 9780521530927, September.
    19. Satterthwaite, Mark A. & Williams, Steven R., 1989. "Bilateral trade with the sealed bid k-double auction: Existence and efficiency," Journal of Economic Theory, Elsevier, vol. 48(1), pages 107-133, June.
    20. Wolfgang Pesendorfer & Jeroen M. Swinkels, 1997. "The Loser's Curse and Information Aggregation in Common Value Auctions," Econometrica, Econometric Society, vol. 65(6), pages 1247-1282, November.
    21. Chamley,Christophe P., 2004. "Rational Herds," Cambridge Books, Cambridge University Press, number 9780521824019, September.
    22. Peter M. DeMarzo & Dimitri Vayanos & Jeffrey Zwiebel, 2003. "Persuasion Bias, Social Influence, and Unidimensional Opinions," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(3), pages 909-968.
    23. Max R. Blouin & Roberto Serrano, 2001. "A Decentralized Market with Common Values Uncertainty: Non-Steady States," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 68(2), pages 323-346.
    24. Remenik, Daniel, 2009. "Limit theorems for individual-based models in economics and finance," Stochastic Processes and their Applications, Elsevier, vol. 119(8), pages 2401-2435, August.
    25. Leininger, W. & Linhart, P. B. & Radner, R., 1989. "Equilibria of the sealed-bid mechanism for bargaining with incomplete information," Journal of Economic Theory, Elsevier, vol. 48(1), pages 63-106, June.
    26. Stephen Morris & Hyun Song Shin, 2005. "Central Bank Transparency and the Signal Value of Prices," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 36(2), pages 1-66.
    27. Gale, Douglas & Kariv, Shachar, 2003. "Bayesian learning in social networks," Games and Economic Behavior, Elsevier, vol. 45(2), pages 329-346, November.
    28. Duffie, Darrell & Malamud, Semyon & Manso, Gustavo, 2010. "The relative contributions of private information sharing and public information releases to information aggregation," Journal of Economic Theory, Elsevier, vol. 145(4), pages 1574-1601, July.
    29. Milgrom, Paul R, 1981. "Rational Expectations, Information Acquisition, and Competitive Bidding," Econometrica, Econometric Society, vol. 49(4), pages 921-943, June.
    30. Manzano, Carolina & Vives, Xavier, 2011. "Public and private learning from prices, strategic substitutability and complementarity, and equilibrium multiplicity," Journal of Mathematical Economics, Elsevier, vol. 47(3), pages 346-369.
    31. Wolinsky, Asher, 1990. "Information Revelation in a Market with Pairwise Meetings," Econometrica, Econometric Society, vol. 58(1), pages 1-23, January.
    32. Darrell Duffie & Gustavo Manso, 2007. "Information Percolation in Large Markets," American Economic Review, American Economic Association, vol. 97(2), pages 203-209, May.
    33. Kadan, Ohad, 2007. "Equilibrium in the two-player, k-double auction with affiliated private values," Journal of Economic Theory, Elsevier, vol. 135(1), pages 495-513, July.
    34. Philip J Reny & Motty Perry, 2006. "Toward a Strategic Foundation for Rational Expectations Equilibrium," Econometrica, Econometric Society, vol. 74(5), pages 1231-1269, September.
    35. Avraham Beja., 1976. "The Limited Information Efficiency of Market Processes," Research Program in Finance Working Papers 43, University of California at Berkeley.
    36. Williams, Steven R., 1987. "Efficient performance in two agent bargaining," Journal of Economic Theory, Elsevier, vol. 41(1), pages 154-172, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Duffie, Darrell & Malamud, Semyon & Manso, Gustavo, 2015. "Reprint of: Information percolation in segmented markets," Journal of Economic Theory, Elsevier, vol. 158(PB), pages 838-869.
    2. Duffie, Darrell & Malamud, Semyon & Manso, Gustavo, 2010. "The relative contributions of private information sharing and public information releases to information aggregation," Journal of Economic Theory, Elsevier, vol. 145(4), pages 1574-1601, July.
    3. Pavan, Alessandro & Vives, Xavier, 2015. "Information, Coordination, and Market Frictions: An Introduction," Journal of Economic Theory, Elsevier, vol. 158(PB), pages 407-426.
    4. Amador, Manuel & Weill, Pierre-Olivier, 2012. "Learning from private and public observations of othersʼ actions," Journal of Economic Theory, Elsevier, vol. 147(3), pages 910-940.
    5. Mira Frick & Ryota Iijima & Yuhta Ishii, 2020. "Misinterpreting Others and the Fragility of Social Learning," Econometrica, Econometric Society, vol. 88(6), pages 2281-2328, November.
    6. Daron Acemoglu & Asuman Ozdaglar, 2011. "Opinion Dynamics and Learning in Social Networks," Dynamic Games and Applications, Springer, vol. 1(1), pages 3-49, March.
    7. Andrei, Daniel & Cujean, Julien, 2017. "Information percolation, momentum and reversal," Journal of Financial Economics, Elsevier, vol. 123(3), pages 617-645.
    8. Mikhail Golosov & Guido Lorenzoni & Aleh Tsyvinski, 2014. "Decentralized Trading With Private Information," Econometrica, Econometric Society, vol. 82(3), pages 1055-1091, May.
    9. Keppo, Jussi & Satopää, Ville A., 2024. "Bayesian herd detection for dynamic data," International Journal of Forecasting, Elsevier, vol. 40(1), pages 285-301.
    10. Matan Harel & Elchanan Mossel & Philipp Strack & Omer Tamuz, 2021. "Rational Groupthink," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 136(1), pages 621-668.
      • Matan Harel & Elchanan Mossel & Philipp Strack & Omer Tamuz, 2014. "Rational Groupthink," Papers 1412.7172, arXiv.org, revised Jun 2020.
    11. Michael Ostrovsky, 2012. "Information Aggregation in Dynamic Markets With Strategic Traders," Econometrica, Econometric Society, vol. 80(6), pages 2595-2647, November.
    12. Xavier Vives, 2017. "Endogenous Public Information and Welfare in Market Games," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 84(2), pages 935-963.
    13. Rahi, Rohit, 2021. "Information acquisition with heterogeneous valuations," Journal of Economic Theory, Elsevier, vol. 191(C).
    14. Angeletos, G.-M. & Lian, C., 2016. "Incomplete Information in Macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 1065-1240, Elsevier.
    15. Lou, Youcheng & Parsa, Sahar & Ray, Debraj & Li, Duan & Wang, Shouyang, 2019. "Information aggregation in a financial market with general signal structure," Journal of Economic Theory, Elsevier, vol. 183(C), pages 594-624.
    16. Lester, Benjamin & Shourideh, Ali & Venkateswaran, Venky & Zetlin-Jones, Ariel, 2023. "Market-making with search and information frictions," Journal of Economic Theory, Elsevier, vol. 212(C).
    17. Robert Shimer & Ivan Werning, 2019. "Efficiency and information transmission in bilateral trading," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 33, pages 154-176, July.
    18. Hirshleifer, David & Teoh, Siew Hong, 2008. "Thought and Behavior Contagion in Capital Markets," MPRA Paper 9142, University Library of Munich, Germany.
    19. Antonio Guarino & Antonella Ianni, 2010. "Bayesian Social Learning with Local Interactions," Games, MDPI, vol. 1(4), pages 1-21, October.
    20. Shneyerov, Artyom & Wong, Adam Chi Leung, 2010. "The rate of convergence to perfect competition of matching and bargaining mechanisms," Journal of Economic Theory, Elsevier, vol. 145(3), pages 1164-1187, May.

    More about this item

    Keywords

    search; matching; double auctions; segmented markets; equilibrium; information; percolation;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:chf:rpseri:rp1009. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ridima Mittal (email available below). General contact details of provider: https://edirc.repec.org/data/fameech.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.