Template-Type: ReDIF-Paper 1.0

Author-Name: Christophe Chamley
Author-X-Name-First: Christophe 
Author-X-Name-Last: Chamley
Author-Email: chamley@bu.edu
Author-Workplace-Name: Department of Economics, Boston University

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Author-X-Name-Last: 
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Title: Complementarities in information acquisition with
short-term trades

Abstract: In a financial market where agents trade for short-term profit and where news
can increase the uncertainty of the public belief, there are strategic complementarities
in the acquisition of private information and if the cost of information
is sufficient small, a continuum of equilibrium strategies. Imperfect observation
of past prices reduces the continuum of Nash-equilibrium to a Strongly
Rational-Expectations Equilibrium. In that equilibrium, there are two sharply
different regimes for the evolution of the price, the volume of trade and the
information acquisition.

Length:  29 pages
Creation-Date: 2006-07
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File-URL: http://people.bu.edu/chamley/papers/720.pdf
File-Format: Application/pdf
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Number: WP2006-042
Classification-JEL:
Keywords: endogenous information, short-term gain, micro-structure, strategic
complementarity, multiple equilibria, Strongly Rational-Expectations Equilibrium,
trading frenzies.
Handle: RePEc:bos:wpaper:WP2006-042