This paper presents a model with endogenous information acquisition when peers’ valuation matters for investments. It is shown that peers’ stock prices guide private investments but become less informative when decision makers trade on private information. Private information production and trading in the secondary market reduce market liquidity and thus aggravate the impact of noise-creating participation shocks on price informativeness. However, noise also provides camouflage and enables decision makers to generate trading profits at the expense of uninformed traders. There is a tradeoff between trading profit as a source for liquidity and investment efficiency.

information acquisition, informational feedback, peers, noise, price informativeness, investment efficiency