Public information and uninformed trading: Implications for market liquidity and price efficiency

• 成果类型: Article
• 署名作者: Han, Bing; Tang, Ya; Yang, Liyan
• 署名单位: University of Toronto; Peking University
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2016.02.012
• 发表日期: 2016
• 页码: 604-643
• 关键词: Discretionary liquidity trading; market liquidity; information aggregation; Information production; hedging

摘要

We develop a rational expectations equilibrium model in which noise trading comes from discretionary liquidity traders. The equilibrium quantity of aggregate noise trading is endogenously determined by the population size of liquidity traders active in the financial market. By improving market liquidity, public information reduces the expected trading loss of liquidity traders and thus attracts more such traders to the market, which negatively affects information aggregation. Analyzing an alternative setting that models noise trading as coming from hedgers yields similar insights. In a setting with endogenous information, public information can harm information aggregation both through crowding out private information and through attracting noise trading. (C) 2016 Elsevier Inc. All rights reserved.