Persistent Trade and Aggregate Disagreement in Competitive Dynamic Markets

Abstract

Dynamic models with heterogeneously informed investors are hard to solve: investors must forecast the forecasts of others. We overcome this difficulty by constructing a continuum economy as the limit of finite economies in which investors have heterogeneous private signals and agree to disagree about prices. Total signal precision remains finite as the economy grows, and private signals aggregate into a single noisy public signal, revealed by the price, that is a sufficient statistic for others’ forecasts. Individual belief distortions vanish in the limit, but their cross-sectional distribution survives as aggregate disagreement and sustains trade. A trade equilibrium exists whenever this disagreement is balanced across investors, and we characterize it without assuming a specific utility function. Market quality and trading activity are jointly shaped by the dispersion of beliefs and wealth inequality, and may increase or decrease in either.

BibTeX

@unpublished{AvdisFreiGlebkinHuwyler2026,
  author = {Avdis, Efstathios and Frei, Christoph and Glebkin, Sergei and Huwyler, Raphael},
  title = {Persistent Trade and Aggregate Disagreement in Competitive Dynamic Markets},
  year = {2026},
  note = {Working paper},
  url = {https://sglebkin.com/dynCHILE.pdf}
}