Speculative Delaying with Information Cascades and Partition Learning

Abstract

We present here a very simple model of the generation of speculative trading, based on the asymmetry of information among agents. Those that are more informed are able to vary the price of assets by buying or selling them. Less informed agents are only able to observe the market price and can form mistaken expectations that lead to further price increases. In the end, more informed agents are able to profit from inducing the latter behavior in less informed investors. The results we obtain are highly dependent on the parameters of the model. But it can be shown that instances exists in which speculative trading delays occur in way that is usually identified in real-world cases.