Article ID Journal Published Year Pages File Type
957416 Journal of Economic Theory 2007 17 Pages PDF
Abstract

A rational expectations equilibrium with positive demand for financial information does exist under fully revealing asset price—contrary to a wide-held conjecture. Whereas a continuum of investors is inconsistent with fully revealing equilibrium, finitely many investors with average portfolios demand information in equilibrium if they can adjust portfolio size in an additive signal-return model. More information diminishes the expected excess return of a risky asset so that investors who only have a choice of portfolio composition or whose asset endowments strongly differ from the average portfolio are worse off. Under fully revealing price, information market equilibria both with and without information acquisition are Pareto efficient.

Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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