Information, trade and incomplete markets

Abstract

Trade, Incomplete markets, Risk sharing, D52, D82,

Costly Information Acquisition, Social Networks, and Asset Prices: Experimental Evidence

“…Second, as argued in Blume, Coury, and Easley (2006), if markets are state-contingent incomplete (as in our case), then there will be trade even if information is public and all traders agree on its meaning. This is because of the presence of risk-sharing opportunities among risk-averse traders.…”

Risk sharing and retrading in incomplete markets

“…The theorem generalizes Theorem 5 of Blume et al (2006). They impose a stronger full rank condition on the public signal; in our notation, their assumption is that rank(Λ π,S 1 .…”

“…This leaves open the question of retrading in a competitive economy with incomplete markets. In this setting, Blume et al (2006) provide sufficient conditions on a public signal such that retrade occurs for a generic economy. We generalize their result (in Theorem 4.3) by providing a weaker sufficient condition, for a broader class of public signals (including signals that induce a partition of the state space), and for an arbitrary asset structure.…”

Informed Trading and Intertemporal Substitution

“…This paper contributes to the literature on information-based trading. Beginning with Aumann (1976), a series of no-trade theorems challenged the commonsense intuition of information-based trading (Kreps (1977), Grossman and Stiglitz (1980), Milgrom and Stokey (1982), Tirole (1982), Blume, Coury, and Easley (2006)). Researchers have thus considered many explanations for trade, including "irrational trading" by noisy traders (Grossman and Stiglitz (1980), Glosten and Milgrom (1985), Kyle (1985)), or heterogeneous beliefs across traders (Harrison and Kreps (1978), Morris (1994)).…”

“…Many explanations proposed for rational trading are based on market incompleteness (Blume, Coury, and Easley (2006), Gottardi and Rahi (2013), Lubensky and Smith (2016)). Blume, Coury, and Easley (2006) examine trading when the market is incomplete with respect to endowment shocks. In Lubensky and Smith (2016), agents need to trade in one period to learn their own trading type and the benefit is so high that these new agents behave like noisy traders.…”