We study the market for a risky asset in which traders are heterogeneous both in terms of their value for the asset and the information that they have about this value. Traders behave strategically and use the equilibrium price to extract information that is relevant to them. Due to adverse selection, uninformed traders are less willing than the informed to provide liquidity. We evaluate the impact of a change in the size or composition of the investor population on price informativeness, liquidity and welfare, with applications to the rise of passive investing and the adoption of ESG standards. 

　　Publication:  

　　Journal of Economic Theory, 214 (2023), 105756 

　　https://doi.org/10.1016/j.jet.2023.105756 

　　Author： 

　　Youcheng Lou 

　　Academy of Mathematics and Systems Science, Chinese Academy of Sciences, Beijing 100190, China 

　　Email: louyoucheng@amss.ac.cn 

　　Rohit Rahi 

　　Department of Finance, London School of Economics, London WC2A 2AE, UK 

　　Email: r.rahi@lse.ac.uk