Information Spillovers in Asset Markets with Correlated Values

Vladimir Asriyan, Brett Green  , William Fuchs  , - Jul 06, 2018

We study information spillovers in a dynamic setting with corre-
lated assets owned by privately-informed sellers. In the model, a
trade of one asset can provide information about the value of other
assets. Importantly, the information content of trading behavior is
endogenously determined. We show that this endogeneity leads
to multiple equilibria when assets are suciently correlated. The
equilibria are ranked in terms of both trade volume and eciency.
The model has implications for policies targeting post-trade trans-
parency. We show that introducing post-trade transparency can
increase or decrease welfare and trading volume depending on the
asset correlation, equilibrium being played, and the composition of
market participants.


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Information Spillovers Transparency adverse selection