Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/237992 
Authors: 
Year of Publication: 
2020
Series/Report no.: 
BGPE Discussion Paper No. 201
Publisher: 
Friedrich-Alexander-Universität Erlangen-Nürnberg, Erlangen und Nürnberg
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 different traders that are informed about different components of the noise inherent in the market price. I find that agents' trades against different types of noise are complements due to an inference augmentation effect. 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 complementarities can also be found in the information market. Both acquiring information about the same type and about different types of noise can be complements.
Subjects: 
Rational Expectations Equilibrium
Complementarities
Noise Trading
Non-Fundamental Information
JEL: 
C62
D53
G12
G40
Document Type: 
Working Paper

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