Noise propagation and equilibrium multiplicity

We present a noise propagation model in which clever informed traders have access to sentiment information to examine how traders' sentiment influences the equilibrium properties. In the model, noise propagation has a self-fulfilling effect, such effect generates two probable equilibria (LIE and HIE). It is documented that in the two equilibria clever informed traders have larger expected utility than common informed traders, which imposes extra risk on common informed traders. We also show that in the complementarity-driven LIE (substitutability-driven HIE) clever informed traders have more (less) motivation to chase noise and thus amplify (narrow) the utility difference with common informed traders.