Multitype Information Acquisition in a Strategic Trading Model

We analyze information acquisition in a strategic trading model with multidimensional uncertainties. Our main result is that the equilibrium can exhibit multiplicity because of the integer nature of the number of informed traders and the strategic interactions across different types of informed traders. We show that the number of equilibria can be arbitrarily large. Moreover, asymmetric equilibria can arise even in symmetric settings. As information costs rise, fewer traders acquire information, yet prices can become more informative. These results shed light on the instability of financial markets and yield testable empirical predictions. This paper was accepted by Lukas Schmid, finance. Funding: This work was supported by the National Natural Science Foundation of China [Grants 72472171 and 72372011]. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2024.08463 .