Government intervention and information aggregation by prices
Market prices are thought to contain a lot of useful information. Hence, government regulators (and other economic agents) are often urged to use market prices to guide decisions. An important issue to consider is the endogeneity of market prices and how they are affected by the prospect of government intervention. We show that if the government learns from the price when taking a corrective action, it might reduce the incentives of speculators to trade on their information, and hence reduce price informativeness. We show that transparency may reduce trading incentives and price informativeness further. Diametrically opposite implications hold for the alternative case in which the government's action amplifies the effect of underlying fundamentals. We derive implications for the optimal use of market information and for the government's incentives to produce its own information
|Date of creation:||2012|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.EconomicDynamics.org/society.htm
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Faure-Grimaud, Antoine, 2002. "Using Stock Price Information to Regulate Firms," Review of Economic Studies, Wiley Blackwell, vol. 69(1), pages 169-90, January.
- Herring, Richard J., 2004. "The subordinated debt alternative to Basel II," Journal of Financial Stability, Elsevier, vol. 1(2), pages 137-155, December.
- Admati, Anat R, 1985. "A Noisy Rational Expectations Equilibrium for Multi-asset Securities Markets," Econometrica, Econometric Society, vol. 53(3), pages 629-57, May.
- Hulya Eraslan & Philip Bond, 2008.
"Information Based Trade,"
2008 Meeting Papers
1012, Society for Economic Dynamics.
- John Krainer & Jose A. Lopez, 2001.
"Incorporating equity market information into supervisory monitoring models,"
Working Paper Series
2001-14, Federal Reserve Bank of San Francisco.
- Krainer, John & Lopez, Jose A, 2004. "Incorporating Equity Market Information into Supervisory Monitoring Models," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(6), pages 1043-67, December.
- Thierry Foucault & Thomas Gehrig, 2008.
"Stock price informativeness, cross-listings and investment decisions,"
- Foucault, Thierry & Gehrig, Thomas, 2008. "Stock price informativeness, cross-listings, and investment decisions," Journal of Financial Economics, Elsevier, vol. 88(1), pages 146-168, April.
- Foucault, Thierry & Gehrig, Thomas, 2006. "Stock price informativeness, cross-listings and investment decisions," Les Cahiers de Recherche 840, HEC Paris.
- Foucault, Thierry & Gehrig, Thomas, 2006. "Stock Price Informativeness, Cross-Listings and Investment Decisions," CEPR Discussion Papers 5722, C.E.P.R. Discussion Papers.
- Thierry Foucault & T. Gehrig, 2006. "Stock Price Informativeness, Cross-Listings and Investment Decisions," Post-Print halshs-00125690, HAL.
- Thierry Foucault, 2006. "Stock Price Informativeness, Cross-Listings and Investment Decisions," Post-Print halshs-00121054, HAL.
- Khanna, Naveen & Slezak, Steve L & Bradley, Michael, 1994. "Insider Trading, Outside Search, and Resource Allocation: Why Firms and Society May Disagree on Insider Trading Restrictions," Review of Financial Studies, Society for Financial Studies, vol. 7(3), pages 575-608.
- Leland, Hayne E, 1992.
"Insider Trading: Should It Be Prohibited?,"
Journal of Political Economy,
University of Chicago Press, vol. 100(4), pages 859-87, August.
- Itay Goldstein & Alexander Guembel, 2008. "Manipulation and the Allocational Role of Prices," Review of Economic Studies, Oxford University Press, vol. 75(1), pages 133-164.
- Philip Bond & Itay Goldstein & Edward Simpson Prescott, 2010. "Market-Based Corrective Actions," Review of Financial Studies, Society for Financial Studies, vol. 23(2), pages 781-820, February.
- Stephen Morris & Hyun Song Shin, 2002. "Social Value of Public Information," American Economic Review, American Economic Association, vol. 92(5), pages 1521-1534, December.
- Hellwig, Martin F., 1980. "On the aggregation of information in competitive markets," Journal of Economic Theory, Elsevier, vol. 22(3), pages 477-498, June.
- Bhattacharya Utpal & Reny Philip J. & Spiegel Matthew, 1995.
"Destructive Interference in an Imperfectly Competitive Multi-Security Market,"
Journal of Economic Theory,
Elsevier, vol. 65(1), pages 136-170, February.
- Reny, P.J. & Bhattacharya, U. & Spiegel, M., 1993. "Destructive Interference in an Imperfectly Competitive Multi-Security Market," UWO Department of Economics Working Papers 9318, University of Western Ontario, Department of Economics.
- Monika Piazzesi, 2005. "Bond Yields and the Federal Reserve," Journal of Political Economy, University of Chicago Press, vol. 113(2), pages 311-344, April.
- Jayant Vivek Ganguli & Liyan Yang, 2009. "Complementarities, Multiplicity, and Supply Information," Journal of the European Economic Association, MIT Press, vol. 7(1), pages 90-115, 03.
- Douglas D. Evanoff & Larry D. Wall, 2000. "Subordinated debt as bank capital: a proposal for regulatory reform," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q II, pages 40-53.
When requesting a correction, please mention this item's handle: RePEc:red:sed012:225. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann)
If references are entirely missing, you can add them using this form.