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Who Acquires Information in Dealer Markets?

R�diger, Jesper; Vigier, Adrien

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Authors

Jesper R�diger



Abstract

We study information acquisition in dealer markets. We first identify a one-sided strategic complementarity in information acquisition: the more informed traders are, the larger market makers' gain from becoming informed. When quotes are observable, this effect in turn induces a strategic complementarity in information acquisition amongst market makers. We then derive the equilibrium pattern of information acquisition and examine the implications of our analysis for market liquidity and price discovery. We show that increasing the cost of information can decrease market liquidity and improve price discovery.

Citation

Rüdiger, J., & Vigier, A. (2020). Who Acquires Information in Dealer Markets?. American Economic Review, 110(4), 1145-1176. https://doi.org/10.1257/aer.20170690

Journal Article Type Article
Acceptance Date Nov 22, 2019
Online Publication Date Apr 1, 2020
Publication Date Apr 1, 2020
Deposit Date Sep 18, 2020
Publicly Available Date Mar 29, 2024
Journal American Economic Review
Print ISSN 0002-8282
Publisher American Economic Association
Peer Reviewed Peer Reviewed
Volume 110
Issue 4
Pages 1145-1176
DOI https://doi.org/10.1257/aer.20170690
Keywords Dealer Markets; Information Acquisition; Market Liquidity; Price Discovery.
Public URL https://nottingham-repository.worktribe.com/output/4913082
Publisher URL https://www.aeaweb.org/articles?id=10.1257/aer.20170690
Additional Information Rüdiger, Jesper, and Adrien Vigier. 2020. "Who Acquires Information in Dealer Markets?" American Economic Review, 110 (4): 1145-76.

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