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Information Acquisition in Financial Markets

Gadi Barlevy and Pietro Veronesi
The Review of Economic Studies
Vol. 67, No. 1 (Jan., 2000), pp. 79-90
Published by: Oxford University Press
Stable URL: http://www.jstor.org/stable/2567029
Page Count: 12
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Information Acquisition in Financial Markets
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Abstract

Previous work on information and financial markets has focused on a special set of assumptions: agents have exponential utility, and random variables are normally distributed. These assumptions are often necessary to obtain closed-form solutions. We present an example with alternative assumptions, and demonstrate that some of the conclusions from previous literature fail to hold. In particular, we show that in our example, as more agents acquire information, prices do not necessarily become more informative, and agents may have greater incentive to acquire information. Learning can therefore be a strategic complement, allowing for the possibility of multiple equilibria.

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