Econometrica: Jan 2016, Volume 84, Issue 1
Asset Markets with Heterogeneous Information
Pablo KurlatThis paper studies competitive equilibria of economies where assets are heterogeneous and traders have heterogeneous information about them. Markets are defined by a price and a procedure for clearing trades, and any asset can, in principle, be traded in any market. Buyers can use their information to impose acceptance rules which specify which assets they are willing to trade in each market. The set of markets where trade takes place is derived endogenously. The model can be applied to find conditions under which these economies feature fire sales, contagion, and flights to quality.
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Supplement to "Asset Markets with Heterogeneous Information"
This appendix describes (without formally stating all the equilibrium objects) what the equilibrium looks like under two other possible information structures.