Publication: Who acquires information in dealer markets?
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2020-04-01
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American Economic Association
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.
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Bibliographic citation
Rüdiger, J., & Vigier, A. (2020). Who Acquires Information in Dealer Markets? En American Economic Review, 110 (4), pp. 1145-1176.