IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/32823.html
   My bibliography  Save this paper

Clustering on the same news sources in an asset market

Author

Listed:
  • Larson, Nathan

Abstract

We study the incentives to acquire information from exclusive news sources versus information from popular sources in a CARA-normal asset market. Each trader is able to observe one of a finite number of news sources. Clustering on the most precise source can happen for two reasons. One is standard: traders do not care that they dilute others’ profits by trading on the same information. The other reason is more novel: traders with different information sets may respond to the same news differently — when this is so, they can benefit by coordinating their attention on the same news source in order to take opposite sides of the market. News from such a source will generate abnormal volume that need not be accompanied by large price movement. Furthermore, we show that as the number of sources grows, traders concentrate their attention on a few of the best ones, leaving most information unexploited.

Suggested Citation

  • Larson, Nathan, 2011. "Clustering on the same news sources in an asset market," MPRA Paper 32823, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:32823
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/32823/1/MPRA_paper_32823.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Kandel, Eugene & Pearson, Neil D, 1995. "Differential Interpretation of Public Signals and Trade in Speculative Markets," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 831-872, August.
    2. Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
    3. Admati, Anat R. & Pfleiderer, Paul, 1987. "Viable allocations of information in financial markets," Journal of Economic Theory, Elsevier, vol. 43(1), pages 76-115, October.
    4. Stijn Van Nieuwerburgh & Laura Veldkamp, 2009. "Information Immobility and the Home Bias Puzzle," Journal of Finance, American Finance Association, vol. 64(3), pages 1187-1215, June.
    5. Mitchell, Mark L & Mulherin, J Harold, 1994. "The Impact of Public Information on the Stock Market," Journal of Finance, American Finance Association, vol. 49(3), pages 923-950, July.
    6. Glosten, Lawrence R, 1994. "Is the Electronic Open Limit Order Book Inevitable?," Journal of Finance, American Finance Association, vol. 49(4), pages 1127-1161, September.
    7. Roger K. Loh & René M. Stulz, 2011. "When Are Analyst Recommendation Changes Influential?," Review of Financial Studies, Society for Financial Studies, vol. 24(2), pages 593-627.
    8. Vives Xavier, 1995. "The Speed of Information Revelation in a Financial Market Mechanism," Journal of Economic Theory, Elsevier, vol. 67(1), pages 178-204, October.
    9. Kim, O & Verrecchia, Re, 1991. "Trading Volume And Price Reactions To Public Announcements," Journal of Accounting Research, Wiley Blackwell, vol. 29(2), pages 302-321.
    10. Chakravarty Sugato & Holden Craig W., 1995. "An Integrated Model of Market and Limit Orders," Journal of Financial Intermediation, Elsevier, vol. 4(3), pages 213-241, July.
    11. Bamber, Ls, 1986. "The Information-Content Of Annual Earnings Releases - A Trading Volume Approach," Journal of Accounting Research, Wiley Blackwell, vol. 24(1), pages 40-56.
    12. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-1335, November.
    13. Vives, Xavier, 1995. "Short-Term Investment and the Informational Efficiency of the Market," Review of Financial Studies, Society for Financial Studies, vol. 8(1), pages 125-160.
    14. Diamond, Douglas W. & Verrecchia, Robert E., 1981. "Information aggregation in a noisy rational expectations economy," Journal of Financial Economics, Elsevier, vol. 9(3), pages 221-235, September.
    15. Froot, Kenneth A & Scharftstein, David S & Stein, Jeremy C, 1992. "Herd on the Street: Informational Inefficiencies in a Market with Short-Term Speculation," Journal of Finance, American Finance Association, vol. 47(4), pages 1461-1484, September.
    16. Diego García & Günter Strobl, 2011. "Relative Wealth Concerns and Complementarities in Information Acquisition," Review of Financial Studies, Society for Financial Studies, vol. 24(1), pages 169-207.
    17. Admati, Anat R. & Pfleiderer, Paul, 1986. "A monopolistic market for information," Journal of Economic Theory, Elsevier, vol. 39(2), pages 400-438, August.
    18. Christian Hellwig & Laura Veldkamp, 2009. "Knowing What Others Know: Coordination Motives in Information Acquisition," Review of Economic Studies, Oxford University Press, vol. 76(1), pages 223-251.
    19. Laura L. Veldkamp, 2006. "Media Frenzies in Markets for Financial Information," American Economic Review, American Economic Association, vol. 96(3), pages 577-601, June.
    20. Hellwig, Martin F., 1980. "On the aggregation of information in competitive markets," Journal of Economic Theory, Elsevier, vol. 22(3), pages 477-498, June.
    21. Manzano, Carolina & Vives, Xavier, 2011. "Public and private learning from prices, strategic substitutability and complementarity, and equilibrium multiplicity," Journal of Mathematical Economics, Elsevier, vol. 47(3), pages 346-369.
    22. Albert S. Kyle, 1989. "Informed Speculation with Imperfect Competition," Review of Economic Studies, Oxford University Press, vol. 56(3), pages 317-355.
    23. Verrecchia, Robert E, 1982. "Information Acquisition in a Noisy Rational Expectations Economy," Econometrica, Econometric Society, vol. 50(6), pages 1415-1430, November.
    24. Jayant Vivek Ganguli & Liyan Yang, 2009. "Complementarities, Multiplicity, and Supply Information," Journal of the European Economic Association, MIT Press, vol. 7(1), pages 90-115, March.
    25. Handa, Puneet & Schwartz, Robert A, 1996. "Limit Order Trading," Journal of Finance, American Finance Association, vol. 51(5), pages 1835-1861, December.
    26. Ronald L. Goettler & Christine A. Parlour & Uday Rajan, 2005. "Equilibrium in a Dynamic Limit Order Market," Journal of Finance, American Finance Association, vol. 60(5), pages 2149-2192, October.
    27. Stickel, Scott E, 1992. "Reputation and Performance among Security Analysts," Journal of Finance, American Finance Association, vol. 47(5), pages 1811-1836, December.
    28. Linda Smith Bamber & Orie E. Barron & Douglas E. Stevens, 2011. "Trading Volume Around Earnings Announcements and Other Financial Reports: Theory, Research Design, Empirical Evidence, and Directions for Future Research," Contemporary Accounting Research, John Wiley & Sons, vol. 28(2), pages 431-471, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. García, Diego & Urošević, Branko, 2013. "Noise and aggregation of information in large markets," Journal of Financial Markets, Elsevier, vol. 16(3), pages 526-549.
    2. Avdis, Efstathios, 2016. "Information tradeoffs in dynamic financial markets," Journal of Financial Economics, Elsevier, vol. 122(3), pages 568-584.
    3. Marmora, Paul & Rytchkov, Oleg, 2018. "Learning about noise," Journal of Banking & Finance, Elsevier, vol. 89(C), pages 209-224.
    4. Verrecchia, Robert E., 2001. "Essays on disclosure," Journal of Accounting and Economics, Elsevier, vol. 32(1-3), pages 97-180, December.
    5. Pavan, Alessandro & Vives, Xavier, 2015. "Information, Coordination, and Market Frictions: An Introduction," Journal of Economic Theory, Elsevier, vol. 158(PB), pages 407-426.
    6. Blankespoor, Elizabeth & deHaan, Ed & Marinovic, Iván, 2020. "Disclosure processing costs, investors’ information choice, and equity market outcomes: A review," Journal of Accounting and Economics, Elsevier, vol. 70(2).
    7. Vayanos, Dimitri & Wang, Jiang, 2013. "Market Liquidity—Theory and Empirical Evidence ," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 1289-1361, Elsevier.
    8. Lou, Youcheng & Parsa, Sahar & Ray, Debraj & Li, Duan & Wang, Shouyang, 2019. "Information aggregation in a financial market with general signal structure," Journal of Economic Theory, Elsevier, vol. 183(C), pages 594-624.
    9. Eduardo Dávila & Cecilia Parlatore, 2021. "Trading Costs and Informational Efficiency," Journal of Finance, American Finance Association, vol. 76(3), pages 1471-1539, June.
    10. Ardalan, Kavous, 1998. "Financial markets with asymmetric information: An expository review of seminal models," International Review of Economics & Finance, Elsevier, vol. 7(1), pages 23-51.
    11. Doron Israeli & Ron Kasznik & Suhas A. Sridharan, 2022. "Unexpected distractions and investor attention to corporate announcements," Review of Accounting Studies, Springer, vol. 27(2), pages 477-518, June.
    12. Markus K Brunnermeier & Michael Sockin & Wei Xiong, 2022. "China’s Model of Managing the Financial System [Beauty Contests and Iterated Expectations in Asset Markets]," Review of Economic Studies, Oxford University Press, vol. 89(6), pages 3115-3153.
    13. Dugast, Jérôme & Foucault, Thierry, 2018. "Data abundance and asset price informativeness," Journal of Financial Economics, Elsevier, vol. 130(2), pages 367-391.
    14. Kovalenkov, Alexander & Vives, Xavier, 2014. "Competitive rational expectations equilibria without apology," Journal of Economic Theory, Elsevier, vol. 149(C), pages 211-235.
    15. Ledenyov, Dimitri O. & Ledenyov, Viktor O., 2015. "Wave function method to forecast foreign currencies exchange rates at ultra high frequency electronic trading in foreign currencies exchange markets," MPRA Paper 67470, University Library of Munich, Germany.
    16. Niu, Zilong, 2013. "Relative Performance Concerns, Attention Allocation and Complementarities in Information Acquisition," MPRA Paper 51194, University Library of Munich, Germany, revised 02 Nov 2013.
    17. Giovanni Cespa & Thierry Foucault, 2014. "Sale of Price Information by Exchanges: Does It Promote Price Discovery?," Management Science, INFORMS, vol. 60(1), pages 148-165, January.
    18. Manela, Asaf, 2014. "The value of diffusing information," Journal of Financial Economics, Elsevier, vol. 111(1), pages 181-199.
    19. Bing Han & Liyan Yang, 2013. "Social Networks, Information Acquisition, and Asset Prices," Management Science, INFORMS, vol. 59(6), pages 1444-1457, June.
    20. Muendler, Marc-Andreas, 2008. "Risk-neutral investors do not acquire information," Finance Research Letters, Elsevier, vol. 5(3), pages 156-161, September.

    More about this item

    Keywords

    information acquisition; herding; abnormal volume; market order; limit order;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:32823. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.