Information Spillovers in Asset Markets with Correlated Values Articles uri icon

publication date

  • July 2017

start page

  • 2007

end page

  • 2040

issue

  • 7

volume

  • 107

International Standard Serial Number (ISSN)

  • 0002-8282

Electronic International Standard Serial Number (EISSN)

  • 1944-7981

abstract

  • We study information spillovers in a dynamic setting with correlated assets owned by privately informed sellers. In the model, a trade of one asset can provide information about the value of other assets. Importantly, the information content of trading behavior is endogenously determined. We show that this endogeneity leads to multiple equilibria when assets are sufficiently correlated. The equilibria are ranked in terms of both trade volume and efficiency. The model has implications for policies targeting post-trade transparency. We show that introducing post-trade transparency can increase or decrease welfare and trading volume depending on the asset correlation, equilibrium being played, and the composition of market participants.

keywords

  • trading behavior; post-trade transparency; sellers; comportamiento comercial; transparencia post-negociaciĆ³n; vendedores; comercio