Endogenous Acquisition of Multi-Dimensional Information in a Strategic Trading Model

63 Pages Posted: 5 Mar 2021

See all articles by Hui Ou-Yang

Hui Ou-Yang

Cheung Kong Graduate School of Business

Weili Wu

Central University of Finance and Economics (CUFE)

Date Written: December 9, 2020

Abstract

We analyze a strategic trading model with endogenous acquisition of multi-dimensional costly private information. We find that integer constraints on the number of informed traders, coupled with the interactions among different types of informed traders, lead to multiplicity and nonexistence of equilibria in the information market. Multiplicity stems either from information substitutability or from information complementarity, and nonexistence stems from the combined effect of information substitutability and information complementarity. Integer constraints also lead to asymmetric equilibria even when the model setup is symmetric. Under integer constraints, the fixed point theorem is no longer applicable and new methodologies are developed to prove the existence of equilibria as well as to find specific solutions for equilibria.

Keywords: Strategic Trading, Endogenous Information Acquisition, Multi-Dimensional Information, Multiplicity and Nonexistence of Equilibria, Symmetry Breaking Equilibrium

JEL Classification: G10, G12, G14

Suggested Citation

Ou-Yang, Hui and Wu, Weili, Endogenous Acquisition of Multi-Dimensional Information in a Strategic Trading Model (December 9, 2020). Available at SSRN: https://ssrn.com/abstract=3798127 or http://dx.doi.org/10.2139/ssrn.3798127

Hui Ou-Yang

Cheung Kong Graduate School of Business ( email )

Hong Kong
China
852-5199-6227 (Phone)

Weili Wu (Contact Author)

Central University of Finance and Economics (CUFE) ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

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