In an English auction with multi-dimensional signals, a “reversal ” may arise: an earlier dropout may be better news to the seller than a later dropout, and the expected revenue can be decreasing over some range of clock prices. Keywords: English auction; Multi-dimentional signals; Reversal JEL Classification: D44; D82

Financial innovation has increased diversification opportunities and lowered investment costs, but has not reduced the relative cost of active (informed) investment strategies relative to passive (less informed) strategies. What are the consequences? I study an economy with linear production technologies, some more risky than others. Investors can use low quality public information or collect high quality, but costly, private information. Information helps avoiding excessively risky investments. Financial innovation lowers the incentives for private information collection and deteriorates public information: the economy invests more often in excessively risky technologies. This changes the business cycle properties and can reduce welfare by increasing the likelihood of “liquidation crises”. JEL Nos.: G14, G33, G01, E32. Keywords: Financial innovation, information collection, great moderation, liquidation crisis. 1

We consider a market game with a continuum of consumers, where the measure of each type is stochastic. Nature selects the set of active consumers, who make bids and o¤ers on ` ¡ 1 spot market trading posts. Existence of type-symmetric Nash equilibrium is proven. When facing price uncertainty, best responses are unique, and a Nash equilibrium to the sell-all game is typically not a Nash equilibrium to the original game. Under plausible circumstances, consumers strictly prefer to be on one side of the market. Journal of Economic Literature Classi…cation Numbers: C7, D4, D8. 2 1

This paper examines the effect of ‘leakage of information, ’ i.e., private information becoming available to uninformed agents, on strategic market trading in a dynamic context. In existing strategic models of trading under asymmetric information, the set of informed traders, whether single or multiple, is held fixed over the different

This paper examines the effect of ‘leakage of information, ’ i.e., private information becoming available to uninformed agents, on strategic market trading in a dynamic context. In existing strategic models of trading under asymmetric information the set of informed traders, whether single or multiple, is held fixed over the different

This paper examines the effect of ‘leakage of information, ’ i.e., private information becoming available to uninformed agents, on strategic market trading in a dynamic context. In existing strategic models of trading under asymmetric information, the set of informed traders, whether single or multiple, is held fixed over the different

A rational-expectations equilibrium with positive demand for financial information does exist under fully revealing asset price—contrary to a wide-held conjecture. Generalizing the common additive signal-return model with CARA utility to the family of distributions with moment generating functions, this paper shows that individual investors endowed with an average portfolio demand information in equilibrium if they can adjust portfolio size. More information diminishes the expected excess return of a risky asset so that investors who only have a choice of portfolio composition or whose asset endowments strongly differ from the average portfolio are worse off. Under fully revealing price, information market equilibria both with and without information acquisition are Pareto efficient.

Information acquisition in financial markets is analyzed in an integrated model of information and portfolio choice. Asset returns are assumed to be gamma distributed and signals to be Poisson. A simultaneous rational expectations equilibrium in asset and information markets does exist under fully revealing prices. It entails a strictly positive amount of acquired signals if markets are large, asset returns relatively volatile or investors sufficiently risk averse. Thus, a long-standing noequilibrium paradox is resolved. More information reduces the ex ante variance of the asset return from each investor’s point of view, and thus allows for a better portfolio choice. A Samuelson-type welfare criterion for informational efficiency is proposed and applied. As with any public good, markets allocate information but less than socially desirable. However, the utility enhancing effect of more private information may be outweighed by the negative effect of its becoming commonly known. Information is reflected in the asset price. Shared information moves the price closer to the individually expected return, thus reducing the value of the risky asset. This can make information undesirable for investors.