We propose a theory of security design in financing entrepreneurial production, positing that the investor can acquire costly information on the entrepreneur's project before making the financing decision. When the entrepreneur has enough bargaining power in security design, the optimal security...

We propose a simple measure of investor sophistication based on financial statement experience derived from publicly available EDGAR log data about accounting information acquisition activity. This approach allows us to provide unique empirical evidence for the existence of attention induced...

This paper reports on experiments testing the viability of markets for cheap talk information. We find that the poor quality of the information transmitted leads to a collapse of information markets. The reasons for this are surprising given the previous experimental results on cheap-talk games....

We show that mutual funds use information acquired by participating in the equity lending market to make portfolio allocation decisions. Using data from German mutual funds on their stock-level lending decisions, we find that funds lending shares are more likely to exit positions relative both...

We allow a strategic trader to choose when to acquire information about an asset's payoff, instead of endowing her with it. When the trader dynamically controls the precision of a flow of information, the optimal precision evolves stochastically and increases with market liquidity. However,...

We analyze a model where different traders are informed of different fundamentals that affect the security value. We identify a source for strategic complementarities in trading and information acquisition: The aggressive trading on information about one fundamental reduces the uncertainty in...

We study how dynamic research affects information acquisition in financial markets. In our strategic trading model, the trader performs costly research to generate private information but does not always succeed. Optimal research activity responds to market conditions and generates novel...

We find that single-name options trading increases the absolute level of information content of prices (stock price informativeness). We confirm our results through instrumental variable approach to control for potential endogeneity. We further show causality by using a difference-in-difference...

I study the effect of public information disclosure in a market setting where private information acquisition exhibits strategic complementarity. To overcome the issue of equilibrium multiplicity, I introduce heterogeneous information cost and imperfect information on the cost distribution. The...

This paper investigates the strategic interaction of information acquisition, information-based dynamic trading, and noise trading patterns, as well as its significant implications on market equilibrium outcomes. We consider a market where the strategic trader can dynamically acquire costly...