Conformism, Public News and Market Effciency
AbstractWe study the implications of conformism among analysts in a CARA Gaussian model of the market for a risky asset, where a trader's in- formation is a message sent by an analyst. Conformism increases the weight of the public information in the messages, decreasing their in- formativeness. More precise public information does not always result in more precise messages. A larger precision of the analysts informa- tion does not always make the market more liquid and the price more informative. Conformism creates an overreaction of the price to pub- lic information. Using the price as a public signal does not alter the results.
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Bibliographic InfoPaper provided by Oxford Financial Research Centre in its series OFRC Working Papers Series with number 2008fe16.
Date of creation: 2008
Date of revision:
public information; asymmetric information; conformism; revelation of information by prices; rational expectations;
Other versions of this item:
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-03-08 (All new papers)
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- Jeanne Hagenbach & Frédéric Koessler, 2008. "Strategic communication networks," Working Papers halshs-00586847, HAL.
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