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Conformism, Public News and Market Efficiency

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  • Gabriel Desgranges
  • Celine Rochon

Abstract

We study the implications of conformism among analysts in a CARA Gaussian model of the market for a risky asset, where a trader's information is a message sent by an analyst. Conformism increases the weight of the public information in the messages, decreasing their informativeness. More precise public information does not always result in more precise messages. A larger precision of the analysts information does not always make the market more liquid and the price more informative. Conformism creates an overreaction of the price to public information. Using the price as a public signal does not alter the results.

Suggested Citation

  • Gabriel Desgranges & Celine Rochon, 2008. "Conformism, Public News and Market Efficiency," Economics Series Working Papers 2008fe16, University of Oxford, Department of Economics.
    • Handle: RePEc:oxf:wpaper:2008fe16
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    Cited by:

    1. Jeanne Hagenbach & Frédéric Koessler, 2010. "Strategic Communication Networks," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 77(3), pages 1072-1099.

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    More about this item

    Keywords

    Public Information; Asymmetric Information; Conformism; Revelation of Information by Prices; Rational Expectations;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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