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The Informational Role of Prices

Author

Listed:
  • Sanford Grossman

    () (University of Pennsylvania)

Abstract

Over the past decade, Sanford Grossman's contributions to the economics of information have significantly altered the way economists think about rational expectations. Here his articles are collected in one place, providing a uniform framework for understanding how prices convey information in securities markets. Grossman elaborates a new model of economic equilibrium that casts a dual role for prices both as constraints that affect the immediate costs or benefits of acts and as conveyers of information about the probable future costs and benefits of those acts. He points to the Wall Street panic of October 1987 as an example of the informational role of prices where volatility actually represented sophisticated trading strategies by relatively uninformed individuals.

Suggested Citation

  • Sanford Grossman, 1989. "The Informational Role of Prices," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262572141, March.
  • Handle: RePEc:mtp:titles:0262572141
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    More about this item

    Keywords

    information economics; prices; securities markets;

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • B31 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals - - - Individuals

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