Learning from trades

Author(s)
Eeva Mauring
Abstract

I study stationary cut-off-strategy equilibria of a dynamic market model where buyers sample sellers sequentially from an unknown distribution. Buyers learn about the distribution from the sampled sellers and a trade signal'. The trade signal reveals whether a randomly chosen seller traded yesterday. Observing a trade (as opposed to no trade) is good news about the distribution. Buyers who observe a trade use a higher cut-off than buyers who observe no trade, despite buyers' learning from sampled sellers that puts a countervailing pressure on the cut-offs. The trade signal may reduce market efficiency, while an appropriate exogenous signal increases efficiency.

Organisation(s)
Department of Economics
Journal
The Economic Journal
Volume
127
Pages
827-872
No. of pages
46
ISSN
0013-0133
DOI
https://doi.org/10.1111/ecoj.12484
Publication date
05-2017
Peer reviewed
Yes
Austrian Fields of Science 2012
502021 Microeconomics
Keywords
ASJC Scopus subject areas
Economics and Econometrics
Portal url
https://ucris.univie.ac.at/portal/en/publications/learning-from-trades(91078549-a424-4cd8-b53d-b437d869cdf6).html