Authors: Vladimir Asriyan, William Fuchs and Brett Green

American Economic Review, Vol. 107, No 7, 2007-2040, July, 2017

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 suffciently correlated. The equilibria are ranked in terms of both trade volume and effciency. 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.

This paper originally appeared as Barcelona GSE Working Paper 827