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Privacy or Publicity - Who Drives the Wheel?

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  • Christina E. Bannier

    (J.W. Goethe-University Frankfurt)

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    Abstract

    Financial markets are to a very large extent influenced by the advent of information. Such disclosures, however, do not only contain information about fundamentals underlying the markets, but they also serve as a focal point for the beliefs of market participants. This dual role of information gains further importance for explaining the development of asset valuations when taking into account that information may be perceived individually (private information), or may be commonly shared by all traders (public information). This study investigates into the recently developed theoretical structures explaining the operating mechanism of the two types of information and emphasizes the empirical testability and differentiation between the role of private and public information. Concluding from a survey of experimental studies and own econometric analyses, it is argued that most often public information dominates private information. This finding justifies central bankers’ unease when disseminating news to the markets and argues against the recent trend of demanding full transparency both for financial institutions and financial markets themselves.

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    Bibliographic Info

    Paper provided by EconWPA in its series Game Theory and Information with number 0309006.

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    Date of creation: 26 Sep 2003
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    Handle: RePEc:wpa:wuwpga:0309006

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    Web page: http://128.118.178.162

    Related research

    Keywords: Private information; public information; transparency; beliefs; coordination; financial crises;

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    References

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    1. Hyun Shin, 2001. "Coordination Risk and the Price of Debt," Economics Series Working Papers 1999-W25, University of Oxford, Department of Economics.
    2. Hellwig, Christian, 2002. "Public Information, Private Information, and the Multiplicity of Equilibria in Coordination Games," Journal of Economic Theory, Elsevier, vol. 107(2), pages 191-222, December.
    3. Peter Ockenfels & Rosemarie Nagel & Frank Heinemann, 2002. "Speculative Attacks and Financial Architecture: Experimental Analysis of Coordination Games with Public and Private Information," FMG Discussion Papers dp416, Financial Markets Group.
    4. Christina E. Bannier, 2003. "Private and Public Information in Self-Fulfilling Currency Crises," International Finance 0309006, EconWPA.
    5. Morris, S & Song Shin, H, 1996. "Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks," Economics Papers 126, Economics Group, Nuffield College, University of Oxford.
    6. Hyun Song Shin & Stephen Morris, 2001. "Coordination Risk and the Price of Debt," FMG Discussion Papers dp373, Financial Markets Group.
    7. Bhattacharya, U. & Spiegel, M., 1989. "Insiders, Outsiders And Market Breakdowns," Papers fb-_89-20, Columbia - Graduate School of Business.
    8. Rosemarie Nagel & Antonio Cabrales & Roc Armenter, 2002. "Equilibrium selection through incomplete information in coordination games: An experimental study," Economics Working Papers 601, Department of Economics and Business, Universitat Pompeu Fabra.
    9. Sbracia, Massimo & Zaghini, Andrea, 2001. "Expectations and information in second generation currency crises models," Economic Modelling, Elsevier, vol. 18(2), pages 203-222, April.
    10. Maurice Obstfeld, 1995. "Models of Currency Crises with Self-Fulfilling Features," NBER Working Papers 5285, National Bureau of Economic Research, Inc.
    11. Glosten, Lawrence R. & Milgrom, Paul R., 1985. "Bid, ask and transaction prices in a specialist market with heterogeneously informed traders," Journal of Financial Economics, Elsevier, vol. 14(1), pages 71-100, March.
    12. Stephen Morris & Hyun S Shin, 2001. "Global Games: Theory and Applications," Levine's Working Paper Archive 122247000000001080, David K. Levine.
    13. Maurice Obstfeld, 1994. "The Logic of Currency Crises," NBER Working Papers 4640, National Bureau of Economic Research, Inc.
    14. Frank Heinemann, 2002. "Exchange-rate Attack as a Coordination Game: Theory and Experimental Evidence," Oxford Review of Economic Policy, Oxford University Press, vol. 18(4), pages 462-478.
    15. Stephen Morris & Hyun Song Shin, 2002. "Social Value of Public Information," American Economic Review, American Economic Association, vol. 92(5), pages 1521-1534, December.
    16. Alessandro Prati & Massimo Sbracia, 2002. "Currency crises and uncertainty about fundamentals," Temi di discussione (Economic working papers) 446, Bank of Italy, Economic Research and International Relations Area.
    17. Holden, Craig W & Subrahmanyam, Avanidhar, 1992. " Long-Lived Private Information and Imperfect Competition," Journal of Finance, American Finance Association, vol. 47(1), pages 247-70, March.
    18. Heinemann, Frank & Illing, Gerhard, 2002. "Speculative attacks: unique equilibrium and transparency," Journal of International Economics, Elsevier, vol. 58(2), pages 429-450, December.
    19. Nagel, Rosemarie, 1995. "Unraveling in Guessing Games: An Experimental Study," American Economic Review, American Economic Association, vol. 85(5), pages 1313-26, December.
    20. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November.
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    Cited by:
    1. Jean-Pierre ALLEGRET & Camille CORNAND, 2006. "The pros and cons of higher transparency : the case of speculative attacks," Discussion Papers (REL - Recherches Economiques de Louvain) 2006031, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).

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