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The More We Know about the Fundamental, the Less We Agree on the Price

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  • Péter Kondor

Abstract

I allow trading horizon heterogeneity across groups in a standard differential information model of a financial market. This approach can explain the well-established phenomenon that, after a public announcement, trading volume increases, more private information is incorporated into prices and volatility increases. In such environments, public information has the important secondary role of helping agents learn about the information of other agents. Therefore, whenever the correlation between the private information of different groups is sufficiently low, a public announcement increases disagreement among short-horizon traders regarding the expected selling price even as it decreases disagreement about the fundamental value of the asset. Additional testable implications are also suggested. Copyright , Oxford University Press.

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Bibliographic Info

Article provided by Oxford University Press in its journal The Review of Economic Studies.

Volume (Year): 79 (2012)
Issue (Month): 3 ()
Pages: 1175-1207

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Handle: RePEc:oup:restud:v:79:y:2012:i:3:p:1175-1207

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Cited by:
  1. Kristoffer Nimark, 2013. "Man-Bites-Dog Business Cycle," Working Papers, Barcelona Graduate School of Economics 700, Barcelona Graduate School of Economics.
  2. Liyan Yang & Itay Goldstein, 2014. "Market Efficiency and Real Efficiency: The Connect and Disconnect via Feedback Effects," 2014 Meeting Papers, Society for Economic Dynamics 154, Society for Economic Dynamics.
  3. Liyan Yang & Itay Goldstein, 2012. "Information Diversity and Market Efficiency Spirals," 2012 Meeting Papers, Society for Economic Dynamics 349, Society for Economic Dynamics.
  4. Csóka, Péter & Havran, Dániel & Váradi, Kata, 2014. "Konferencia a pénzügyi piacok likviditásáról. BCE Befektetések és Vállalati Pénzügy Tanszék-MTA KRTK Játékelméleti Kutatócsoport, Budapest, 2013. október 3-4
    [Fourth Annual Financia
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(3), pages 324-334.
  5. Liyan Yang & Itay Goldstein, 2014. "Good Disclosure, Bad Disclosure," 2014 Meeting Papers, Society for Economic Dynamics 42, Society for Economic Dynamics.
  6. Elías Albagli, 2013. "Investment Horizons and Asset Prices under Asymmetric Information," Working Papers Central Bank of Chile, Central Bank of Chile 709, Central Bank of Chile.

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