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Conformism, Public News and Market Effciency

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Author Info
Gabriel Desgranges
Celine Rochon

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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 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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Publisher Info
Paper provided by Oxford Financial Research Centre in its series OFRC Working Papers Series with number 2008fe16.

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Length: 43
Date of creation: 2008
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Handle: RePEc:sbs:wpsefe:2008fe16

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Web page: http://www.finance.ox.ac.uk
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Related research
Keywords: public information; asymmetric information; conformism; revelation of information by prices; rational expectations;

Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies

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    Other versions:
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    Other versions:
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