Information Efficiency and Welfare in the Stock Market

In an overlapping generations model each generation invests a given budget into a portfolio consisting of risky shares and a riskless asset. In each period all agents receive information about the future dividends of the shares. There is a unique stationary equilibrium. this equilibrium is not constrained efficient in the sense that there exists a (non market-clearing) share price such that all agents would be better off, if the shares were exchanged at this price. Further, for certain stochastic environments the public information is socially harmful, and we derive a necessary and sufficient condition for this to occur. 

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