Equilibria and Information Choices in Multi-Asset Markets with Multidimensional Information

In a multi-asset market where agents have both payoff and supply signals, the rational expectations equilibria with partially revealing prices are characterized by an algebraic Riccati equation. The equation states that asset prices’ payoff informativeness equals the aggregation of individuals’ payoff information revealed in trading, whereas each agent’s payoff information consists of her payoff signals and what she infers from asset prices with her supply signals. We then study information choice in such markets; the existence of equilibria is generally established by an aggregative game approach. In models with information entropy constraints, stylish trading emerges: an agent chooses to be either a fundamentalist or a chartist. Generically speaking, heterogeneous prior beliefs are necessary for fundamentalists and chartists coexisting in the market