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Conformism and Public News

Author Info

Listed author(s):
  • Celine Rochon
  • Gabriel Desgranges

Abstract

We study a model where investment decisions are based on investors’ information about the unknown and endogenous return of the investment. The information of investors consists of endogenously determined messages sold by financial analysts who have access to both public and private information on the return of the investment. We assume that the return of the investment is correlated with the aggregate investment. This results into a beauty contest among analysts (or a "conformism" effect). In equilibrium, analysts sell all the information they have to all the investors. A striking result is that there are sometimes multiple equilibria. There are equilibria where the beauty contest is exacerbated. Because of the correlation across analysts' information sources, not all the information available in the economy is transmitted to investors.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/33.

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Length: 26
Date of creation: 01 Feb 2011
Handle: RePEc:imf:imfwpa:11/33
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Keywords: Public information; Asymmetric Information; Conformism; Beauty Contest; investors; equation; correlation; polynomial; investment decisions; Asymmetric and Private Information;

Other versions of this item:

Find related papers by JEL classification:
  • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
  • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
  • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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