This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.

The AEA website will be offline for brief scheduled maintenance after 6:00pm (EDT) this evening.
  1. Home
  2. Journals
  3. American Economic Review
  4. April 2020
  5. Who Acquires Information in Dealer Markets?

Who Acquires Information in Dealer Markets?

  • Jesper Rüdiger
  • Adrien Vigier
American Economic Review
vol. 110, no. 4, April 2020
(pp. 1145-76)
Download Full Text PDF

Abstract

We study information acquisition in dealer markets. We first identify a one-sided strategic complementarity in information acquisition: the more informed traders are, the larger market makers' gain from becoming informed. When quotes are observable, this effect in turn induces a strategic complementarity in information acquisition amongst market makers. We then derive the equilibrium pattern of information acquisition and examine the implications of our analysis for market liquidity and price discovery. We show that increasing the cost of information can decrease market liquidity and improve price discovery.

Citation

Rüdiger, Jesper, and Adrien Vigier. 2020. "Who Acquires Information in Dealer Markets?" American Economic Review, 110 (4): 1145-76. DOI: 10.1257/aer.20170690

Additional Materials

JEL Classification

  • D82 Asymmetric and Private Information; Mechanism Design
  • D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
  • G14 Information and Market Efficiency; Event Studies; Insider Trading