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The pricing effects of ambiguous private information

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  • Jayant Ganguli

    ()

  • Scott Condie

Abstract

Ambiguous private information leads to informational inefficiency of market prices in rational expectations equilibrium. This inefficiency implies lower asset prices as uninformed traders require a premium to hold assets. This premium is increasing in the riskiness of the asset and leads to excess volatility, price swings, and abrupt volatility and illiquidity variation across informational efficiency regimes. Public information affects the informational efficiency of price and can also lead to abrupt changes involatility and illiquidity.

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Bibliographic Info

Paper provided by University of Essex, Department of Economics in its series Economics Discussion Papers with number 720.

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Date of creation: 30 Oct 2012
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Handle: RePEc:esx:essedp:720

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References

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Cited by:
  1. Jayant Ganguli & Scott Condie & Philipp Karl Illeditsch, 2012. "Information Inertia," Economics Discussion Papers 719, University of Essex, Department of Economics.
  2. Mandler, Michael, 2013. "Endogenous indeterminacy and volatility of asset prices under ambiguity," Theoretical Economics, Econometric Society, vol. 8(3), September.
  3. Pasquariello, Paolo, 2014. "Prospect Theory and market quality," Journal of Economic Theory, Elsevier, vol. 149(C), pages 276-310.
  4. Edison G. Yu, 2013. "Dynamic market participation and endogenous information aggregation," Working Papers 13-42, Federal Reserve Bank of Philadelphia.

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