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Conformism and Public News

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  • 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.

Suggested Citation

  • Celine Rochon & Gabriel Desgranges, 2011. "Conformism and Public News," IMF Working Papers 11/33, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:11/33
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    References listed on IDEAS

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    Cited by:

    1. G. Gaballo, 2017. "Price Dispersion, Private Uncertainty, and Endogenous Nominal Rigidities," Working papers 653, Banque de France.

    More about this item

    Keywords

    Public information; Asymmetric Information; Conformism; Beauty Contest; investors; equation; correlation; polynomial; investment decisions; Asymmetric and Private Information;

    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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