Public and private learning from prices, strategic substitutability and complementarity, and equilibrium multiplicity

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. We study a general static noisy rational expectations model, where investors have private information about asset payoffs, with common and private components, and about their own exposure to an aggregate risk factor, and derive conditions for existence and uniqueness (or multiplicity) of equilibria. We find that a main driver of the characterization of equilibria is whether the actions of investors are strategic substitutes or complements. This latter property in turn is driven by the strength of a private learning channel from prices, arising from the multidimensional sources of asymmetric information, in relation to the usual public learning channel. When the private learning channel is strong (weak) in relation to the public we have strong (weak) strategic complementarity in actions and potentially multiple (unique) equilibria. The results enable a precise characterization of whether information acquisition decisions are strategic substitutes or complements. We find that the strategic substitutability in information acquisition result obtained in Grossman and Stiglitz (1980) is robust. Terms of use: Documents inJEL-Code: D82, D83, G14.

Sentiments and Aggregate Demand Fluctuations

“…Therefore they still have to optimally extract from their signal the magnitude of the fundamental and sentiment shocks because the realization of prices and real wages depend on the relative magnitude of these shocks. We show that (i) a continuum of endogenous sentiment-driven equilibria arise in this setup even if …rms can observe the quantity of their demand perfectly (i.e., even if their signal is s jt = y jt ); 25 and (ii) the signal s jt = y jt is isomorphic to that speci…ed in equation (9) with 2 0; 1 2 . Finally we construct another case where we introduce extra uncertainty on the …rm's cost side, where a cost shock is correlated with the preference or intermediate-good demand shock, possibly because a high demand may a¤ect marketing or sales costs for the …rm.…”

Dynamic Trading and Asset Prices: Keynes Vs. Hayek

“…Those are akin to investors who receive a shock to their endowment and use the market to optimally hedge against such a shock. It is worth noting that even in a static model the presence of such hedgers may generate multiplicity of linear partially revealing equilibria (see, e.g., Ganguli and Yang (2009) and Manzano and Vives (2010)). This would further complicate the analysis of the dynamic market that we carry out in the following sections.…”

Clustering on the Same News Sources in an Asset Market

“…5 Outside of our focus on why traders might choose to acquire the same signals, there are other ways in which financial actors may make similar decisions about information. 6 Grundy and Mc- 3 Manzano and Vives [30], which has traders with partially correlated signals, is one recent exception. 4 Kyle [28] permits traders to choose from an extremely flexible class of demand schedules that includes both market orders and our linear limit orders as special cases.…”

“…Nichols [19] and Manzano and Vives [30], among others, study markets in which traders' decisions about how much private information to acquire, or how aggressively to trade on that information, are strategic complements. Generally, the complementarity arises from a feedback loop between individual actions and the informativeness of the market price, and as a consequence, there may be multiple equilibria.…”