Information Diversity and Market Behavior: A Comment

Abstract

IN FIGLEWSKI [1], the author construct(s) a model of a purely speculative market, in which speculation on price changes is the only motive for trading, and the return for investors as a group is zero, even though each trader possesses information which he believes will allow him personally to make a (p. 90, lines 8-12).1 This zero-sum game of commodity speculation is played over several successive periods. In each period, . . information is released, the opens and a clearing price is established by tatonnement, so that investors know what the price will be before they trade, and thereby obtain additional information about other traders' estimates of P* (the ultimate endof-period commodity spot price). They use this information to update their expectations and all trading (by the ith investor) is ultimately based on forecasts conditioned on both 4Ji (trader i's information set) and PM (p. 91, paragraph 2). Of course, investor i ... believes he has information that does not accurately reflect which will allow him to earn a speculative profit trading against the market (p. 91, paragraph 3). Figlewski presents four theorems in his paper; the major result of his paper is Theorem 1.