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Privacy or Publicity - Who Drives the Wheel?

  • Christina E. Bannier

    (J.W. Goethe-University Frankfurt)

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    Financial markets are to a very large extent influenced by the advent of information. Such disclosures, however, do not only contain information about fundamentals underlying the markets, but they also serve as a focal point for the beliefs of market participants. This dual role of information gains further importance for explaining the development of asset valuations when taking into account that information may be perceived individually (private information), or may be commonly shared by all traders (public information). This study investigates into the recently developed theoretical structures explaining the operating mechanism of the two types of information and emphasizes the empirical testability and differentiation between the role of private and public information. Concluding from a survey of experimental studies and own econometric analyses, it is argued that most often public information dominates private information. This finding justifies central bankers’ unease when disseminating news to the markets and argues against the recent trend of demanding full transparency both for financial institutions and financial markets themselves.

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    Paper provided by EconWPA in its series Game Theory and Information with number 0309006.

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    Date of creation: 26 Sep 2003
    Date of revision:
    Handle: RePEc:wpa:wuwpga:0309006
    Note: Type of Document - Word
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    1. M. Sbracia & Alessandro Prati, 2002. "Currency Crises and Uncertainty About Fundamentals," IMF Working Papers 02/3, International Monetary Fund.
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    14. Holden, Craig W & Subrahmanyam, Avanidhar, 1992. " Long-Lived Private Information and Imperfect Competition," Journal of Finance, American Finance Association, vol. 47(1), pages 247-70, March.
    15. Bhattacharya, Utpal & Spiegel, Matthew, 1991. "Insiders, Outsiders, and Market Breakdowns," Review of Financial Studies, Society for Financial Studies, vol. 4(2), pages 255-82.
    16. Frank Heinemann & Rosemarie Nagel & Peter Ockenfels, 2002. "Speculative attacks and financial architecture: experimental analysis of coordination games with public and private information," LSE Research Online Documents on Economics 24935, London School of Economics and Political Science, LSE Library.
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    18. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November.
    19. Maurice Obstfeld, 1994. "The Logic of Currency Crises," NBER Working Papers 4640, National Bureau of Economic Research, Inc.
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