The more we know, the less we agree: public announcements and higher-order expectations
The stylized fact that public announcements in financial markets are followed by intense trading, high trading volume and volatile prices, is widely perceived as the sign of increasing disagreement due to the announcement. However, it is common to argue that this would be inconsistent with Bayesian-learning and common priors. In this paper, we not only show that — with certain information structures — increasing disagreement is possible in a Bayesian model, but we also argue that with the assumption that traders trade for resale — so they try to second guess future traders’ guesses — there are information structures which are simple, intuitive and plausible and result in increasing disagreement even in a standard, multi-period Grossman—Stiglitz model.
|Date of creation:||Dec 2004|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +44 (020) 7405 7686
Web page: http://www.lse.ac.uk/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Adam, Klaus, 2007.
"Optimal monetary policy with imperfect common knowledge,"
Journal of Monetary Economics,
Elsevier, vol. 54(2), pages 267-301, March.
- Adam, Klaus, 2004. "Optimal Monetary Policy with Imperfect Common Knowledge," CEPR Discussion Papers 4594, C.E.P.R. Discussion Papers.
- Klaus Adam, 2004. "Optimal Monetary Policy with Imperfect Common Knowledge," Econometric Society 2004 North American Winter Meetings 24, Econometric Society.
- Adam, Klaus, 2003. "Optimal monetary policy with imperfect common knowledge," Working Paper Series 0223, European Central Bank.
- Klaus Adam, 2003. "Optimal Monetary Policy with Imperfect Common Knowledge," Computing in Economics and Finance 2003 263, Society for Computational Economics.
- Adam, Klaus, 2003. "Optimal Monetary Policy with Imperfect Common Knowledge," CFS Working Paper Series 2003/12, Center for Financial Studies (CFS).
- Klaus Adam, 2004. "Optimal Monetary Policy with Imperfect Common Knowledge," DNB Staff Reports (discontinued) 116, Netherlands Central Bank.
- Christian Hellwig, 2002. "Public Announcements, Adjustment Delays, and the Business Cycle (November 2002)," UCLA Economics Online Papers 208, UCLA Department of Economics.
- Martin D. D. Evans & Richard K. Lyons, 2003.
"How is Macro News Transmitted to Exchange Rates?,"
NBER Working Papers
9433, National Bureau of Economic Research, Inc.
- Paul R. Milgrom, 1979.
"Good Nevs and Bad News: Representation Theorems and Applications,"
407R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Paul R. Milgrom, 1981. "Good News and Bad News: Representation Theorems and Applications," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 380-391, Autumn.
- Brunnermeier, Markus K., 2001. "Asset Pricing under Asymmetric Information: Bubbles, Crashes, Technical Analysis, and Herding," OUP Catalogue, Oxford University Press, number 9780198296980, March.
- Foster, F Douglas & Viswanathan, S, 1996. " Strategic Trading When Agents Forecast the Forecasts of Others," Journal of Finance, American Finance Association, vol. 51(4), pages 1437-78, September.
When requesting a correction, please mention this item's handle: RePEc:ehl:lserod:24645. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (LSERO Manager)
If references are entirely missing, you can add them using this form.