Partial Information Breeds Systemic Risk
Abstract
In this webinar, Huang explores mean-variance portfolio selection among investors, considering a relative performance criterion and the impact of partial information. Investors aim not only for terminal wealth but also for a favorable comparison to the mean field, the average terminal wealth of all investors. Trading strategies are chosen at the inter-personal level, influenced by others' strategies and affecting the mean field. The selected strategy must achieve an equilibrium intra-personally to address time inconsistency triggered by the mean-variance objective. Huang's talk presents a Nash equilibrium in the idealized case of full information and semi-explicitly in the realistic scenario of partial information, revealing that partial information alone can significantly reduce investors' wealth, potentially contributing to systemic risk.
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