Abstract:
An informationally inefficiency market is produced without an exogenous source of noise in
the price. Fundamental traders acquire private information directly through research.
Regression traders employ a learning process to extract the private fundamental information
from the public price. The relative popularity between these two strategies evolves based on
performance. The model converges towards adoption of regression analysis to the point of
creating instability, endogenously producing a noisy price. The lack of a revealing price in the
coupled learning and population processes reflects the Grossman and Stiglitz (Amer. Econ.
Rev. 70(3)(1980)393) impossibility of informationally efficient markets.
