Dynamic market participation and endogenous information aggregation

• 成果类型: Article
• 署名作者: Yu, Edison G.
• 署名单位: Federal Reserve System - USA; Federal Reserve Bank - Philadelphia
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2018.02.002
• 发表日期: 2018
• 页码: 491-517
• 关键词: Ambiguity aversion; uncertainty; Knightian uncertainty; Information revelation

摘要

This paper studies information aggregation in financial markets with recurrent investor exit and entry. I consider a dynamic general equilibrium model of asset trading with private information and collateral constraints. Investors differ in their aversion to Knightian uncertainty: When uncertainty is high, some investors exit the market. Since exiting investors' information is not fully revealed by prices, conditional return volatility and risk premia both increase. The model also implies that exit is more likely when wealth is more concentrated in the hands of less uncertainty-averse investors. The model thus predicts less informative prices toward the end of a long boom. Moreover, economies with looser collateral constraints should see more volatility due to exit and partial revelation. Higher capital requirements potentially improve welfare by inducing more information revelation by prices. (C) 2018 Elsevier Inc. All rights reserved.