Flexible Information Acquisition in the Kyle Model

Speaker: <a href="https://www.bu.edu/questrom/profiles/hao-xing/">Hao Xing, Boston University Questrom</a> Organiser: <a href="https://www.bu.edu/questrom/profiles/hao-xing/">Hao Xing - Boston University Questrom</a> <p>We study an information acquisition problem in which an informed trader acquires costly information prior to trading in the Kyle equilibrium, where the cost of information acquisition is represented by an entropy cost. For any prior distribution of the asset payoff, continuous signals are optimal. Any continuously distributed signal, together with an associated logit-type posterior distribution of the payoff, yields the same ex-ante value for the informed trader, the same distribution of posterior expected payoff, and the same unconditional distribution of the informed trader’s trading stra