Rational Asset Price Movements Without News
AbstractThis paper argues that an important part of movements in asset prices may be caused by neither external news nor irrationality, but the by revelation of information by the trading process itself. Two models are developed that illustrate this general idea. One model is based on investor uncertainty about the quality of other investors' information: the other is based on widespread dispersion of information and small costs to trading. The analysis is used to suggest a possible rational explanation of the October 1987 crash.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4121.
Date of creation: Jul 1992
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