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The value of diffusing information

  • Manela, Asaf
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    How does the speed by which information diffuses affect its value to a stock market investor? In a structural model solved in closed-form, this speed has two opposing effects on the empirically dominant term of the value of information. Faster-diffusing information means quicker and less noisy profits, but, also increases competing informed trading, impounding more information into prices and eroding profits. Structural empirical analysis of stock market reaction to drug approvals using media coverage as a proxy for the transmission rate of information finds that the value of information is hump-shaped in its future transmission rate. Moreover, the estimated amount of noise trading is small.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0304405X13002699
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    Article provided by Elsevier in its journal Journal of Financial Economics.

    Volume (Year): 111 (2014)
    Issue (Month): 1 ()
    Pages: 181-199

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    Handle: RePEc:eee:jfinec:v:111:y:2014:i:1:p:181-199
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505576

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