Conformism and Public News
We study a model where investment decisions are based on investorsâ€™ 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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- Christian Hellwig, 2004. "Heterogeneous Information and the Benefits of Public Information Disclosures (October 2005)," UCLA Economics Online Papers 283, UCLA Department of Economics.
- Ottaviani, Marco & Sorensen, Peter, 2001. "Information aggregation in debate: who should speak first?," Journal of Public Economics, Elsevier, vol. 81(3), pages 393-421, September.
- Barlevy, Gadi & Veronesi, Pietro, 2000.
"Information Acquisition in Financial Markets,"
Review of Economic Studies,
Wiley Blackwell, vol. 67(1), pages 79-90, January.
- Gadi Barlevy & Pietro Veronesi, . "Information Acquisition in Financial Markets," CRSP working papers 360, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
- Gadi Barlevy & Pietro Veronesi, . "Information Acquisition in Financial Markets," CRSP working papers 484, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
- George-Marios Angeletos & Guido Lorenzoni & Alessandro Pavan, 2007. "Wall Street and Silicon Valley: A Delicate Interaction," NBER Working Papers 13475, National Bureau of Economic Research, Inc.
- Peter Sorensen & Marco Ottaviani, 2000. "Herd Behavior and Investment: Comment," American Economic Review, American Economic Association, vol. 90(3), pages 695-704, June.
- Amil Dasgupta & Andrea Prat, 2005. "Reputation and Asset Prices: A Theory of Information Cascades and Systematic Mispricing," Levine's Bibliography 784828000000000368, UCLA Department of Economics.
- Amil Dasgupta & Andrea Prat & Michela Verardo, 2005. "The Price of Conformism," Levine's Bibliography 784828000000000357, UCLA Department of Economics.
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