Template-Type: ReDIF-Paper 1.0

Author-Name: David Russ
Author-X-Name-First: David
Author-X-Name-Last: Russ

Author-Name: 
Author-X-Name-First: 
Author-X-Name-Last: 

Title: Multidimensional Noise and Non-Fundamental
Information Diversity

	
Abstract: In this paper, I relax the common assumption of the one-dimensionality of
noise made in the standard competitive noisy rational expectations framework.
Within an environment characterized by multidimensional noise, I explore
the strategic interactions between dierent traders that are informed about
dierent components of the noise inherent in the market price. I find that
agents' trades against dierent types of noise are complements due to an
inference augmentation eect. As one group trades more aggressively against
the part of the noise they observe, the market price becomes a more precise
signal for fundamentals for the other noise-informed groups. Since traders
use their information about noise together with the market price in order to
infer information about fundamentals, this makes the other groups trade more
aggressively against their observed piece of noise, too. Strategic complementar-
ities can also be found in the information market. Both acquiring information
about the same type and about dierent types of noise can be complements.

Length: 40 pages
Creation-Date:  2020-12
File-URL: http://www.bgpe.de/texte/DP/201_Russ.pdf
File-Format: Application/pdf
File-Function: First version, 2020
Number: 201
Classification-JEL: C62, D53, G12, G40.

Keywords: Rational Expectations Equilibrium, Complementarities,
Noise Trading, Non-Fundamental Information.

Handle: RePEc:bav:wpaper:201_Russ