Strategic Trading and Unobservable Information Acquisition

Download or read book Strategic Trading and Unobservable Information Acquisition written by Snehal Banerjee and published by . This book was released on 2019 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt: We allow a strategic trader to choose when to acquire information about an asset's payoff, instead of endowing her with it. When the trader dynamically controls the precision of a flow of information, the optimal precision evolves stochastically and increases with market liquidity. However, because the trader exploits her information gradually, the equilibrium price impact and market uncertainty are unaffected by her rate of acquisition. Instead, if she pays a fixed cost to acquire "lumpy" information at a time of her choosing, the market can break down: we show there exist no equilibria with endogenous information acquisition. Our analysis suggest caution when applying insights from standard strategic trading models to settings with information acquisition.