(with Youcheng Lou, Sahar Parsa, Duan Li and Shouyang Wang), May 2019, forthcoming, Journal of Economic Theory.
Summary. We study a financial market with asymmetric, multidimensional trader signals that have general correlation structure. Each of a continuum of traders belongs to one of finitely many “information groups.” There is a multidimensional aggregate signal for each group. Each trader observes an idiosyncratic signal about the fundamental, built from this group signal. Correlations across group signals are arbitrary. Several existing models serve as special cases, and new applications become possible. We establish existence and regularity of linear equilibrium, and demonstrate that the equilibrium price aggregates information perfectly as noise trade vanishes. Combines and extends results in Parsa and Ray (2017) and Lou, Li and Wang (2017), both mimeo. Online Appendix.