Complementarities in information acquisition with short-term trades

Abstract

In a financial market where agents trade for short-term profit and where news can increase the uncertainty of the public belief, there are strategic complementarities in the acquisition of private information and if the cost of information is sufficient small, a continuum of equilibrium strategies. Imperfect observation of past prices reduces the continuum of Nash-equilibrium to a Strongly Rational-Expectations Equilibrium. In that equilibrium, there are two sharply different regimes for the evolution of the price, the volume of trade and the information acquisition.

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