Information Heterogeneity: Implications for Liquidity and Price Efficiency

Abstract

This paper discusses a model about information heterogeneity. The market size, information attention and information asymmetry affect market liquidity and price information. Larger market size can lead to an increase in market liquidity and the release of price information; however, traders who possess higher information attention can quickly affect price efficiency through their trading, leading to increased price fluctuations. In addition, the increase in asymmetry scale will lead to a decrease in liquidity and a reduction in the release of price information. Under information asymmetry, large trading groups attract followers, thereby increasing market liquidity and trading intensity.