Information Aggregation in Financial Markets with Career Concerns

Download or read book Information Aggregation in Financial Markets with Career Concerns written by Amil Dasgupta and published by . This book was released on 2009 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: What are the equilibrium features of a dynamic financial market in which traders care about their reputation for ability? We modify a standard sequential trading model to include traders with career concerns. We show that this market cannot be informationally efficient: there is no equilibrium in which prices converge to the true value, even after an infinite sequence of trades. We characterize the most revealing equilibrium of this game and show that an increase in the strength of the traders' reputational concerns has a negative effect on the extent of information that can be revealed in equilibrium but a positive effect on market liquidity.