IDEAS home Printed from https://ideas.repec.org/p/eui/euiwps/eco2006-32.html
   My bibliography  Save this paper

Acquisition of information and share prices: An empirical investigation of cognitive dissonance

Author

Listed:
  • Elena Argentese
  • Helmut Luetkepohl
  • Massimo Motta

Abstract

This paper deals with the determinants of agents’ acquisition of information. Our econometric evidence shows that the general index of Italian share-prices and the series of Italy’s financial newspaper sales are cointegrated, and the former series Granger-causes the latter, thereby giving support to the cognitive dissonance hypothesis: (non-professional) agents tend to buy the newspaper when share prices are high and not to buy it when share prices are low. Instead, we do not find support for the hypothesis that the agents acquire information in order to trade in the stock-market: we find no relationship between quantities exchanged in the market and newspaper sales, nor between stock market volatility and newspaper sales.

Suggested Citation

  • Elena Argentese & Helmut Luetkepohl & Massimo Motta, 2006. "Acquisition of information and share prices: An empirical investigation of cognitive dissonance," Economics Working Papers ECO2006/32, European University Institute.
    • Handle: RePEc:eui:euiwps:eco2006/32
    as

    Download full text from publisher

    File URL: http://cadmus.iue.it/dspace/bitstream/1814/6395/1/ECO-2006-32.pdf
    File Function: main text
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Toda, Hiro Y & Phillips, Peter C B, 1993. "Vector Autoregressions and Causality," Econometrica, Econometric Society, vol. 61(6), pages 1367-1393, November.
    2. Helmut Lütkepohl, 2005. "New Introduction to Multiple Time Series Analysis," Springer Books, Springer, number 978-3-540-27752-1, July.
    3. repec:bla:germec:v:7:y:2006:i::p:189-210 is not listed on IDEAS
    4. Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
    5. Luigi Guiso & Tullio Jappelli, 2006. "Information Acquisition and Portfolio Performance," CeRP Working Papers 52, Center for Research on Pensions and Welfare Policies, Turin (Italy).
    6. Rabin, Matthew, 2002. "A perspective on psychology and economics," European Economic Review, Elsevier, vol. 46(4-5), pages 657-685, May.
    7. Fama, Eugene F & French, Kenneth R, 1988. "Permanent and Temporary Components of Stock Prices," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 246-273, April.
    8. Norbert Funke & Akimi Matsuda, 2006. "Macroeconomic News and Stock Returns in the United States and Germany," German Economic Review, Verein für Socialpolitik, vol. 7(2), pages 189-210, May.
    9. Lutkepohl, Helmut & Reimers, Hans-Eggert, 1992. "Granger-causality in cointegrated VAR processes The case of the term structure," Economics Letters, Elsevier, vol. 40(3), pages 263-268, November.
    10. Lütkepohl,Helmut & Krätzig,Markus (ed.), 2004. "Applied Time Series Econometrics," Cambridge Books, Cambridge University Press, number 9780521547871, October.
    11. Hirshleifer, Jack, 1971. "The Private and Social Value of Information and the Reward to Inventive Activity," American Economic Review, American Economic Association, vol. 61(4), pages 561-574, September.
    12. repec:bla:jfinan:v:53:y:1998:i:5:p:1775-1798 is not listed on IDEAS
    13. Matthew Rabin, 1998. "Psychology and Economics," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 11-46, March.
    14. Joël Peress, 2004. "Wealth, Information Acquisition, and Portfolio Choice," The Review of Financial Studies, Society for Financial Studies, vol. 17(3), pages 879-914.
    15. Roland Bénabou & Jean Tirole, 2005. "Self-Confidence and Personal Motivation," International Economic Association Series, in: Bina Agarwal & Alessandro Vercelli (ed.), Psychology, Rationality and Economic Behaviour, chapter 2, pages 19-57, Palgrave Macmillan.
    16. Juan D. Carrillo & Thomas Mariotti, 2000. "Strategic Ignorance as a Self-Disciplining Device," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 67(3), pages 529-544.
    17. Bénédicte Vidaillet & V. d'Estaintot & P. Abécassis, 2005. "Introduction," Post-Print hal-00287137, HAL.
    18. Pelizzon, Loriana & Weber, Guglielmo, 2008. "Are Household Portfolios Efficient? an Analysis Conditional on Housing," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 43(2), pages 401-431, June.
    19. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
    20. Benkwitz, Alexander & Lütkepohl, Helmut & Wolters, Jürgen, 2001. "Comparison Of Bootstrap Confidence Intervals For Impulse Responses Of German Monetary Systems," Macroeconomic Dynamics, Cambridge University Press, vol. 5(1), pages 81-100, February.
    21. Leeat Yariv, 2002. "I'll See It When I Believe It - A Simple Model of Cognitive Consistency," Cowles Foundation Discussion Papers 1352, Cowles Foundation for Research in Economics, Yale University.
    22. Akerlof, George A & Dickens, William T, 1982. "The Economic Consequences of Cognitive Dissonance," American Economic Review, American Economic Association, vol. 72(3), pages 307-319, June.
    23. Brocas, Isabelle & Carrillo, Juan D. (ed.), 2004. "The Psychology of Economic Decisions: Volume Two: Reasons and Choices," OUP Catalogue, Oxford University Press, number 9780199257225.
    24. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
    25. Brocas, Isabelle & Carrillo, Juan D. (ed.), 2003. "The Psychology of Economic Decisions: Volume One: Rationality and Well-Being," OUP Catalogue, Oxford University Press, number 9780199251087.
    26. Lütkepohl,Helmut & Krätzig,Markus (ed.), 2004. "Applied Time Series Econometrics," Cambridge Books, Cambridge University Press, number 9780521839198, October.
    27. Matthew Rabin & Joel L. Schrag, 1999. "First Impressions Matter: A Model of Confirmatory Bias," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(1), pages 37-82.
    28. Niklas Karlsson & George Loewenstein & Duane Seppi, 2009. "The ostrich effect: Selective attention to information," Journal of Risk and Uncertainty, Springer, vol. 38(2), pages 95-115, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. M. Middeldorp & S. Rosenkranz, 2008. "Information acquisition in an experimental asset market," Working Papers 08-25, Utrecht School of Economics.
    2. Abreu, Margarida & Mendes, Victor, 2012. "Information, overconfidence and trading: Do the sources of information matter?," Journal of Economic Psychology, Elsevier, vol. 33(4), pages 868-881.
    3. Riccardo Ferretti & Andrea Cipollini & Francesco Pattarin, 2016. "Can an unglamorous non-event affect prices? The role of newspapers," Cogent Economics & Finance, Taylor & Francis Journals, vol. 4(1), pages 1142847-114, December.
    4. Bellofatto, Anthony & Broihanne, Marie-Hélène & D'Hondt, Catherine, 2019. "Appetite for information and trading behavior," LIDAM Discussion Papers LFIN 2019002, Université catholique de Louvain, Louvain Finance (LFIN).
    5. Riccardo Ferretti & Francesco Pattarin, 2008. "Is public information really public? The role of newspapers," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 0008, Universita di Modena e Reggio Emilia, Dipartimento di Economia "Marco Biagi".
    6. repec:use:tkiwps:2525 is not listed on IDEAS
    7. Mark Bowden, 2015. "A model of information flows and confirmatory bias in financial markets," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 38(2), pages 197-215, October.
    8. Riccardo Ferretti & Francesco Pattarin, 2008. "Is public information really public? The role of newspapers," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 08013, Universita di Modena e Reggio Emilia, Dipartimento di Economia "Marco Biagi".
    9. Diefeng Peng & Yulei Rao & Mei Wang, 2016. "Do Top 10 Lists of Daily Stock Returns Attract Investor Attention? Evidence from a Natural Experiment," International Review of Finance, International Review of Finance Ltd., vol. 16(4), pages 565-593, December.
    10. Joshy Easaw & Atanu Ghoshray & Saeed Heravi, 2014. "Households' Forming Subjective Expectations Using Perceived News: Do Shocks to ‘Good’ News Matter More Than ‘Bad’ News?," Manchester School, University of Manchester, vol. 82(1), pages 1-16, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Helmut Lütkepohl, 2013. "Vector autoregressive models," Chapters, in: Nigar Hashimzade & Michael A. Thornton (ed.), Handbook of Research Methods and Applications in Empirical Macroeconomics, chapter 6, pages 139-164, Edward Elgar Publishing.
    2. repec:bla:germec:v:11:y:2010:i::p:381-396 is not listed on IDEAS
    3. Mr. Bernhard Eckwert & Mr. Burkhard Drees, 2005. "Asset Mispricing Due to Cognitive Dissonance," IMF Working Papers 2005/009, International Monetary Fund.
    4. Helmut Lütkepohl, 2013. "Reducing confidence bands for simulated impulse responses," Statistical Papers, Springer, vol. 54(4), pages 1131-1145, November.
    5. Markus M. Möbius & Muriel Niederle & Paul Niehaus & Tanya S. Rosenblat, 2022. "Managing Self-Confidence: Theory and Experimental Evidence," Management Science, INFORMS, vol. 68(11), pages 7793-7817, November.
    6. Lütkepohl, Helmut, 2008. "Problems related to over-identifying restrictions for structural vector error correction models," Economics Letters, Elsevier, vol. 99(3), pages 512-515, June.
    7. Ralf Brüggemann & Helmut Lütkepohl, 2006. "A small monetary system for the euro area based on German data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(6), pages 683-702, September.
    8. Leung, Benson Tsz Kin, 2020. "Limited cognitive ability and selective information processing," Games and Economic Behavior, Elsevier, vol. 120(C), pages 345-369.
    9. Weber, Enzo, 2006. "British interest rate convergence between the US and Europe: A recursive cointegration analysis," SFB 649 Discussion Papers 2006-005, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    10. Fahmida Khatun & Syed Yusuf Saadat & Md. Kamruzzaman, 2019. "FINANCE FOR SDGs: Addressing Governance Challenge of Aid Utilisation in Bangladesh," CPD Working Paper 125, Centre for Policy Dialogue (CPD).
    11. Lanne, Markku & Lütkepohl, Helmut, 2010. "Structural Vector Autoregressions With Nonnormal Residuals," Journal of Business & Economic Statistics, American Statistical Association, vol. 28(1), pages 159-168.
    12. Lutkepohl, Helmut, 2007. "General-to-specific or specific-to-general modelling? An opinion on current econometric terminology," Journal of Econometrics, Elsevier, vol. 136(1), pages 319-324, January.
    13. Bruno Frey & Alois Stutzer, 2005. "Happiness Research: State and Prospects," Review of Social Economy, Taylor & Francis Journals, vol. 63(2), pages 207-228.
    14. Thomas M. Eisenbach & Martin C. Schmalz, 2015. "Anxiety and pro-cyclical risk taking with Bayesian agents," Staff Reports 711, Federal Reserve Bank of New York.
    15. Enzo Weber, 2006. "British Interest Rate Convergence Between The Us And Europe: A Recursive Cointegration Analysis," The IUP Journal of Monetary Economics, IUP Publications, vol. 0(4), pages 29-47, November.
    16. David Greasley & Les Oxley, 2010. "Cliometrics And Time Series Econometrics: Some Theory And Applications," Journal of Economic Surveys, Wiley Blackwell, vol. 24(5), pages 970-1042, December.
    17. Marianne Andries & Valentin Haddad, 2020. "Information Aversion," Journal of Political Economy, University of Chicago Press, vol. 128(5), pages 1901-1939.
    18. Tirole, Jean, 2002. "Rational irrationality: Some economics of self-management," European Economic Review, Elsevier, vol. 46(4-5), pages 633-655, May.
    19. Brüggemann, Ralf & Jentsch, Carsten & Trenkler, Carsten, 2016. "Inference in VARs with conditional heteroskedasticity of unknown form," Journal of Econometrics, Elsevier, vol. 191(1), pages 69-85.
    20. Lütkepohl,Helmut & Krätzig,Markus (ed.), 2004. "Applied Time Series Econometrics," Cambridge Books, Cambridge University Press, number 9780521547871, October.
    21. Roman Hušek & Tomáš Formánek, 2014. "Alternative specification, estimation and identification of vector autoregressions [Alternativní specifikace, odhad a identifikace vektorových autoregresí]," Acta Oeconomica Pragensia, Prague University of Economics and Business, vol. 2014(4), pages 52-72.

    More about this item

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eui:euiwps:eco2006/32. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Cécile Brière (email available below). General contact details of provider: https://edirc.repec.org/data/deiueit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.