The distribution of information and the price efficiency of markets

Brice Corgnet (1, 2) , Mark Desantis (3) , David Porter (3)

1 EM - EMLyon Business School
2 GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne
3 Chapman University

Apparently contradictory evidence has accumulated regarding the extent to which financial markets are informationally efficient. Shedding new light on this old debate, we show that differences in the distribution of private information may explain why informational efficiency can vary greatly across markets. We find that markets are informationally efficient when complete information is concentrated in the hands of competing insiders whereas they are less efficient when private information is dispersed across traders. A learning model helps to illustrate why inferring others’ private information from prices takes more time when information is more dispersed.

Mots clés: Cognitive finance; Learning models; Experimental asset markets; Market efficiency; Information aggregation; Information dispersion

Domaines: Economies et finances

Brice Corgnet, Mark Desantis, David Porter. The distribution of information and the price efficiency of markets. Journal of Economic Dynamics and Control, 2019, 110, pp.103671. ⟨10.1016/j.jedc.2019.02.006⟩. ⟨halshs-02393564⟩