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Information Spillovers in Asset Markets with Correlated Values
Vladimir Asriyan, William Fuchs, and Brett Green
American Economic Review. Jul 2017, Vol. 107, No. 7: Pages 2007-2040

Information Spillovers in Asset Markets with Correlated Values†

Vladimir Asriyan1, William Fuchs2 and Brett Green3

1CREI, Ramon Trias Fargas, 25-27, Merce Rodoreda Bldg., Barcelona, 08005, Spain (email: )

2Austin McCombs School of Business, University of Texas, 2110 Speedway, Austin, TX 78705, and Universidad Carlos III Madrid, Calle Madrid, 126, 28903 Getafe, Spain (email: )

3Haas School of Business, University of California, 2220 Piedmont Avenue, Berkeley, CA 94720 (email: )

Abstract

We study information spillovers in a dynamic setting with correlated 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 sufficiently correlated. The equilibria are ranked in terms of both trade volume and efficiency. The model has implications for policies targeting post-trade transparency. 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. (JEL D82, D83, G14, G18)