Information Aggregation with Costly Information Acquisition (opens in new tab)

We study information aggregation in a dynamic trading model with partially informed traders. Ostrovsky [2012] showed that `separable' securities aggregate information in all equilibria, however, determining whether a security is separable requires knowing the exact information structure of agents. To remedy this problem, we allow traders to acquire signals with cost $\kappa$, in every period. We show that `$\kappa$ separable securities' char...