Who Acquires Information in Dealer Markets?

R�diger, Jesper; Vigier, Adrien

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: Sep 18, 2020
• 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.