American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Who Acquires Information in Dealer Markets?
American Economic Review
vol. 110,
no. 4, April 2020
(pp. 1145–76)
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.20170690Additional 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