The asymmetrical Acquisition of information about the range of asset value in market

TL;DR

This paper examines how asymmetrical access to range information about asset values influences market liquidity, price sensitivity, and trading behavior, highlighting complex effects depending on information and trading volume.

Contribution

It introduces a model analyzing the market impact of asymmetrical range information acquisition, revealing its effects on liquidity and price sensitivity.

Findings

Asymmetrical range information affects market liquidity.

Market price sensitivity varies with private signals.

Information asymmetry can both increase and decrease liquidity.

Abstract

The information investors acquire in asset markets has various forms. We refer to range information as information about the upper and lower bound which the payoff of an asset may reach in the future. This paper explores the market impacts of investors' asymmetrical acquisition of range information. Uninformed traders are inherently unable to directly obtain the private signal held by informed traders. This study shows that when range information is released to investors asymmetrically, uninformed traders who can only obtain rougher range information will not trade assets under the max-min ambiguity aversion criterion. Investors' asymmetrical acquisition of range information can cause that market liquidity and the sensitivity of market price to private signal vary continuously with the signal and noise trading volume. We also reveal that investors' asymmetrical acquisition of range information can increase market liquidity and the sensitivity of price under some conditions and decrease them under some other conditions.