Multidimensional noise and non-fundamental information diversity

In this paper, I relax the common assumption of the one-dimensionality of noise made in the standard competitive noisy rational expectations framework. Within an environment characterized by multidimensional noise, I explore the strategic interactions between different traders that are informed about different components of the noise inherent in the market price. I find that agents' trades against different types of noise are complements due to an inference augmentation effect. As one group trades more aggressively against the part of the noise they observe, the market price becomes a more precise signal for fundamentals for the other noise-informed groups. Since traders use their information about noise together with the market price in order to infer information about fundamentals, this makes the other groups trade more aggressively against their observed piece of noise, too. Strategic complementarities can also be found in the information market. Both acquiring information about the same type and about different types of noise can be complements.