Abstract

Abstract The role of prices in transmitting information in financial markets has been extensively studied since the early work of Kihlstrom and Mirman [19] and Grossman [12]. Nevertheless, the study of the speed at which prices incorporate information is much less developed.1 This paper studies a simple information tâtonnement mechanism to elicit the dispersed private information of risk averse agents on the value of a risky asset. The speed of convergence of the prices generated by the mechanism to the underlying value of the asset, that is, the speed of price discovery, is established and the role of market makers analyzed.

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