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Clustering on the same news sources in an asset market

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  • Larson, Nathan

Abstract

We study the incentives to acquire information from exclusive news sources versus information from popular sources in a CARA-normal asset market. Each trader is able to observe one of a finite number of news sources. Clustering on the most precise source can happen for two reasons. One is standard: traders do not care that they dilute others’ profits by trading on the same information. The other reason is more novel: traders with different information sets may respond to the same news differently — when this is so, they can benefit by coordinating their attention on the same news source in order to take opposite sides of the market. News from such a source will generate abnormal volume that need not be accompanied by large price movement. Furthermore, we show that as the number of sources grows, traders concentrate their attention on a few of the best ones, leaving most information unexploited.

Suggested Citation

  • Larson, Nathan, 2011. "Clustering on the same news sources in an asset market," MPRA Paper 32823, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:32823
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    References listed on IDEAS

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    More about this item

    Keywords

    information acquisition; herding; abnormal volume; market order; limit order;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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