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73
Forecasting the Forecast of Others
 Journal of Political Economy
, 1983
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Cited by 86 (0 self)
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Information Aggregation in Dynamic Markets with Strategic Traders,” Working Paper
, 2009
"... This paper studies information aggregation in dynamic markets with a finite number of partially informed strategic traders. It shows that for a broad class of securities, information in such markets always gets aggregated. Trading takes place in a bounded time interval, and in every equilibrium, as ..."
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Cited by 21 (0 self)
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This paper studies information aggregation in dynamic markets with a finite number of partially informed strategic traders. It shows that for a broad class of securities, information in such markets always gets aggregated. Trading takes place in a bounded time interval, and in every equilibrium, as time approaches the end of the interval, the market price of a “separable” security converges in probability to its expected value conditional on the traders ’ pooled information. If the security is “nonseparable, ” then there exists a common prior over the states of the world and an equilibrium such that information does not get aggregated. The class of separable securities includes, among others, ArrowDebreu securities, whose value is one in one state of the world and zero in all others, and “additive ” securities, whose value can be interpreted as the sum of traders ’ signals.
Comparing the robustness of trading systems to higherorder uncertainty
 Review of Economic Studies
, 1996
"... Abstract: This paper compares the performance of a decentralized market with that of a dealership market when traders have differential information. Trade occurs as a result of equilibrium actions in a Bayesian game, where uncertainty is captured by a finite state space and information is represente ..."
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Cited by 15 (3 self)
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Abstract: This paper compares the performance of a decentralized market with that of a dealership market when traders have differential information. Trade occurs as a result of equilibrium actions in a Bayesian game, where uncertainty is captured by a finite state space and information is represented by partitions on this space. In the benchmark case of trade with common knowledge of endowments, the two mechanisms deliver virtually identical outcomes. However, with differential information, the dealership market has strictly higher trading volume, and yields an efficient posttrade allocation in most states. In contrast, the decentralized market suffers from suboptimal trading volume. The reason for this poor performance is the vulnerability of the decentralized market to higher order uncertainty concerning the fundamentals of the market. Traders may know that mutually beneficial trade is feasible, and perhaps know that they know, and yet a failure of common knowledge that this is so precludes efficient trade. The dealership market is robust to this type of uncertainty. * I would like to record my debt to Stephen Morris for shaping my views on the issues raised here. Ian Jewitt, as managing editor, and three referees guided this paper through several revisions, and I am grateful to them for their perseverance. I am especially grateful to one of the referees for pointing to the importance of limit orders in modifying the results reported here. I have gained from the comments of Helmut Bester, Katie
Asymmetric information in a competitive market game: Reexamining the implications of rational expectations
, 1997
"... We examine price formation in a simple static model with asymmetric information, an infinite number of risk neutral traders and no noise traders. Here we reexamine four results associated with rational expectations models relating to the existence of fully revealing equilibrium prices, the advant ..."
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Cited by 11 (2 self)
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We examine price formation in a simple static model with asymmetric information, an infinite number of risk neutral traders and no noise traders. Here we reexamine four results associated with rational expectations models relating to the existence of fully revealing equilibrium prices, the advantage of becoming informed, the costly acquisition of information, and the impossibility of having equilibrium prices with higher volatility than the underlying fundamentals.
Aggregation, Determinacy, and Informational Efficiency for a Class of Economies with Asymmetric Information
 JOURNAL OF ECONOMIC LITERATURE
, 1998
"... We identify and analyze a class of economies with asymmetric information that we call quasicomplete. For quasicomplete economies we determine equilibrium trades, show that the set of fully informative equilibria is a singleton, and give necessary and sufficient conditions for the existence of part ..."
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Cited by 8 (1 self)
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We identify and analyze a class of economies with asymmetric information that we call quasicomplete. For quasicomplete economies we determine equilibrium trades, show that the set of fully informative equilibria is a singleton, and give necessary and sufficient conditions for the existence of partially informative equilibria. Besides unifying some familiar settings, such as those of Grossman (1976) and Milgrom and Stokey (1982), the following new results are proved: (a) The same restrictions that deliver Gorman aggregation under symmetric information are sufficient for Gorman aggregation under asymmetric information, even under partially informative prices; (b) the traditional assumptions of quadratic utilities and endowment spanning that result in the CAPM under symmetric information deliver a conditional CAPM under asymmetric information with prices that need not be fully informative; (c) the linear equilibrium in Grossman's (1976) model is the only equilibrium (linear or not), while minor changes in the normality assumptions result in indeterminacy and partially informative equilibria; and (d) if there is no aggregate endowment risk, asymmetrically informed agents with common priors sell the risky part of their endowment in every equilibrium.
Market efficiency and inefficiency in rational expectations equilibria
 Journal of Economic Dynamics and Control
, 1992
"... Abstract: The paper examines time series properties and efficiency of a securities market where disparately informed traders hold rational expectations and extract signals from the endogenous market price. Two equilibria are calculated, using a method of Sargent to handle the problem of infinite reg ..."
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Cited by 8 (1 self)
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Abstract: The paper examines time series properties and efficiency of a securities market where disparately informed traders hold rational expectations and extract signals from the endogenous market price. Two equilibria are calculated, using a method of Sargent to handle the problem of infinite regress. When rational speculation is the sole source of potential trade, the market price reflects all private information, and zero trade occurs. When net supply is perturbed by unobserved noise, the market exhibits a broad range of characteristics cited in empirical literature, including excess volatility, mean reversion, dividend yield effects, trading volume and divergence of opinion. I am indebted to Thomas J. Sargent for helpful discussions. Are securities prices too volatile? This question is central to evaluating how efficiently resources are allocated in a competitive market. A large body of literature suggests that securities markets will generate prices which reflect all available information, even if some traders are better informed than others. Recent empirical studies place this market efficiency
Imitation and contrarian behavior: hyperbolic bubbles, crashes and chaos, Quantitative Finance
, 2002
"... Imitative and contrarian behaviors are the two typical opposite attitudes of investors in stock markets. We introduce a simple model to investigate their interplay in a stock market where agents can take only two states, bullish or bearish. Each bullish (bearish) agent polls m “friends ” and changes ..."
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Cited by 7 (2 self)
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Imitative and contrarian behaviors are the two typical opposite attitudes of investors in stock markets. We introduce a simple model to investigate their interplay in a stock market where agents can take only two states, bullish or bearish. Each bullish (bearish) agent polls m “friends ” and changes her opinion to bearish (bullish) if (1) at least mρhb (mρbh) among the m agents inspected are bearish (bullish) or (2) at least mρhh> mρhb (mρbb> mρbh) among the m agents inspected are bullish (bearish). The condition (1) (resp. (2)) corresponds to imitative (resp. antagonistic) behavior. In the limit where the number N of agents is infinite, the dynamics of the fraction of bullish agents is deterministic and exhibits chaotic behavior in a significant domain of the parameter space {ρhb, ρbh, ρhh, ρbb, m}. A typical chaotic trajectory is characterized by intermittent phases of chaos, quasiperiodic behavior and superexponentially growing bubbles followed by crashes. A typical bubble starts initially by growing at an exponential rate and then crosses over to a nonlinear power law growth rate leading to a finitetime singularity. The reinjection mechanism provided by the contrarian behavior introduces a finitesize effect, rounding off these singularities and leads to chaos. We document the main stylized facts of this model in the symmetric and asymmetric cases. This model is one of the rare agentbased models that give
Ex post regret and the decentralized sharing of information
 Games and Economic Behavior
, 1999
"... Firms reveal private information about the value of investment through their investment decisions. As a consequence they may have ex post regret once they see other firms ’ investments. We define a notion of rational expectations equilibrium for games which imposes a “noregret ” property. In this e ..."
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Cited by 7 (3 self)
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Firms reveal private information about the value of investment through their investment decisions. As a consequence they may have ex post regret once they see other firms ’ investments. We define a notion of rational expectations equilibrium for games which imposes a “noregret ” property. In this equilibrium, all firms make the same investment decision, but despite the absence of ex post regret, the investment herd can be inefficient. In addition equilibrium might not exist. We introduce a notion of probabilistic existence, and identify conditions under which, if the number of firms is large, enough information comes out so that investment herds are firstbest efficient with high probability, and equilibrium exists with high probability.
Bets and bids: favoritelongshot bias and winner’s curse", Katholieke Universiteit Brabant
 Discussion Paper
, 1995
"... A welldocumented anomaly in racetrack betting is that the expected return per dollar bet on a horse increases with the probability of the horse winning. This socalled favoritelongshot bias is at odds with the presumptions of market efficiency. We show that the bias is consistent with betters havi ..."
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Cited by 6 (0 self)
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A welldocumented anomaly in racetrack betting is that the expected return per dollar bet on a horse increases with the probability of the horse winning. This socalled favoritelongshot bias is at odds with the presumptions of market efficiency. We show that the bias is consistent with betters having myopic beliefs. If betters neglect the fact that the popularity of a horse indicates that other people have favorable information about that horse, then they bet less on the favorite than they should. This myopia is related to, though stronger than, the judgmental bias that leads to the winner's curse in auctions.
Information At Equilibrium
 Journal of Mathematical Economics
, 2000
"... In a game with rational expectations individuals refine their information with the information revealed by the strategies of other individuals: their elementary acts of other individuals at each state of the world. At a Nash of a game with rational expectations, the information of individuals is ..."
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Cited by 6 (1 self)
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In a game with rational expectations individuals refine their information with the information revealed by the strategies of other individuals: their elementary acts of other individuals at each state of the world. At a Nash of a game with rational expectations, the information of individuals is essentially symmetric: the same profile is also an equilibrium of a game with symmetric information; and their acts are common knowledge. If each player has a veto act, which yields a minimum payoff that no other profile of strategies attains, then the veto profile is the only Nash equilibrium, and it is an equilibrium with rational expectations and essentially symmetric information; which accounts for the impossibility of speculation.