CHILE

Abstract

We introduce CHILE, an asset-pricing framework with asymmetric information, general utility functions, and arbitrary payoffs. It features a large economy (LE) with continuous-and-heterogeneous information (CHI). The defining feature of this information structure is that the total amount of information stays finite as the economy grows large. We use the framework to study how concentration—the presence of market participants of different sizes—affects market quality, namely liquidity and information efficiency. Greater concentration proves a double-edged sword: it raises liquidity but harms information efficiency.

BibTeX

@article{AvdisGlebkinForthcoming,
  author = {Avdis, Efstathios and Glebkin, Sergei},
  title = {{CHILE}},
  journal = {Review of Financial Studies},
  year = {forthcoming},
  url = {https://sglebkin.com/CHILE.pdf}
}