How much should we care about what others know? Jump signals in optimal investment under relative performance concerns
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arXiv
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| Format: | Preprint |
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2025
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| _version_ | 1866910037232844800 |
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| author | Bank, Peter Sedrakjan, Gemma |
| author_facet | Bank, Peter Sedrakjan, Gemma |
| contents | We present a multi-agent and mean-field formulation of a game between investors who receive private signals informing their investment decisions and who interact through relative performance concerns. A key tool in our model is a Poisson random measure which drives jumps in both market prices and signal processes and thus captures common and idiosyncratic noise. Upon receiving a jump signal, an investor evaluates not only the signal's implications for stock price movements but also its implications for the signals received by her peers and for their subsequent investment decisions. A crucial aspect of this assessment is the distribution of investor types in the economy. These types determine their risk aversion, performance concerns, and the quality and quantity of their signals. We demonstrate how these factors are reflected in the corresponding HJB equations, characterizing an agent's optimal response to her peers' signal-based strategies. The existence of equilibria in both the multi-agent and mean-field game is established using Schauder's Fixed Point Theorem under suitable conditions on investor characteristics, particularly their signal processes. Finally, we present numerical case studies that illustrate these equilibria from a financial-economic perspective. This allows us to address questions such as how much investors should care about the information known by their peers. |
| format | Preprint |
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arxiv_https___arxiv_org_abs_2503_16039 |
| institution | arXiv |
| publishDate | 2025 |
| record_format | arxiv |
| spellingShingle | How much should we care about what others know? Jump signals in optimal investment under relative performance concerns Bank, Peter Sedrakjan, Gemma Optimization and Control 91G10, 91A06, 91A16, 91B06 We present a multi-agent and mean-field formulation of a game between investors who receive private signals informing their investment decisions and who interact through relative performance concerns. A key tool in our model is a Poisson random measure which drives jumps in both market prices and signal processes and thus captures common and idiosyncratic noise. Upon receiving a jump signal, an investor evaluates not only the signal's implications for stock price movements but also its implications for the signals received by her peers and for their subsequent investment decisions. A crucial aspect of this assessment is the distribution of investor types in the economy. These types determine their risk aversion, performance concerns, and the quality and quantity of their signals. We demonstrate how these factors are reflected in the corresponding HJB equations, characterizing an agent's optimal response to her peers' signal-based strategies. The existence of equilibria in both the multi-agent and mean-field game is established using Schauder's Fixed Point Theorem under suitable conditions on investor characteristics, particularly their signal processes. Finally, we present numerical case studies that illustrate these equilibria from a financial-economic perspective. This allows us to address questions such as how much investors should care about the information known by their peers. |
| title | How much should we care about what others know? Jump signals in optimal investment under relative performance concerns |
| topic | Optimization and Control 91G10, 91A06, 91A16, 91B06 |
| url | https://arxiv.org/abs/2503.16039 |