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Private Beliefs and Information Externalities in the Foreign Exchange Market / Richard K. Lyons.
- Format:
- Book
- Author/Creator:
- Lyons, Richard K.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w3889.
- NBER working paper series no. w3889
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 1991.
- Summary:
- An information externality exists in the foreign exchange market due to the fact that traders play two partially conflicting roles: (i) each is a speculator and (ii) each is an information clearinghouse in that each intermediates own-customer orders which convey information. Profit maximization induces traders to underweight fundamental information in making their trades, reducing the degree to which prices reveal information at any given time. In the model, agents update diverse beliefs over time, with transactions-mediated tatonnement. The explicit role for transactions provides a framework for interpreting the relationship between the diversity of beliefs, trading volume, and price adjustment.
- Notes:
- Print version record
- October 1991.
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