Limited information sharing and market information efficiency

We present a typical noisy rational expectation model where private information can be transmitted in the informed traders' social network to find out the impact of information sharing mechanism on market efficiency. We mainly come to two conclusions. One is that information sharing increase the price informativeness when information acquisition is exogenous. The other one is obviously in contrast with previous literatures in that we find that when information is endogenous, information sharing can improve price informativeness and market depth, and thus promote market information efficiency though the sharing mechanism has a crowd-out effect on information production due to traders' “free-ride”.