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Who Acquires Information in Dealer Markets?

Rudiger, Jesper; Vigier, Adrien Henri
Journal article, Peer reviewed
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URI
https://hdl.handle.net/11250/2998504
Date
2020
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  • Scientific articles [2147]
Original version
The American Economic Review. 2020, 110 (4), 1145-1176.   10.1257/aer.20170690
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.
Publisher
American Economic Assosiation
Journal
The American Economic Review
Copyright
AEA

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