Skip to main content
SpringerLink
Log in
Book cover

Financial Markets Theory pp 397–477Cite as

Information and Financial Markets

  • Chapter
  • First Online:

Part of the book series: Springer Finance ((SFTEXT))

Abstract

This chapter concerns the role of information in financial markets. The chapter starts by studying the value of information from the point of view of an individual agent and then proceeds by analysing the impact of information in the economy. This leads to the introduction of the notion of Green-Lucas equilibrium and, in particular, to the question of whether equilibrium prices transmit, aggregate and reveal the agents’ private information. This concept is intrinsically linked to the informational efficiency of financial markets and provides a microfoundation to the efficient markets theory. In the chapter, the possibility or the impossibility of informationally efficient markets is discussed and established in the context of several models. The chapter closes by briefly examining the case where agents may exhibit heterogeneous opinions and surveying the empirical evidence on the informational efficiency of financial markets.

We must look at the price system as a […] mechanism for communicating information if we want to understand its real function.

Hayek (1945)

This is a preview of subscription content, log in via an institution.

Chapter
USD   29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD   39.99
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD   49.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info
Hardcover Book
USD   59.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Learn about institutional subscriptions

Notes

  1. 1.

    Given two random variables \(\tilde{x}_{1}\) and \(\tilde{x}_{2}\), we say that the law of \(\tilde{x}_{2}\) is a mean-preserving spread of the law of \(\tilde{x}_{1}\) if it holds that \(\tilde{x}_{2}\) is equal in law to \(\tilde{x}_{1} +\tilde{ z}\), where \(\tilde{z}\) is a random variable satisfying \(\mathbb{E}[\,\tilde{z}\,\vert \tilde{x}_{1}] = 0\) (compare with part (iii) of Proposition  2.10).

  2. 2.

    For the sake of simplicity and without loss of generality, we assume that the initial wealth of each agent is non-random. In the original paper Grossman & Stiglitz [849], the initial wealth is specified in terms of the two traded securities and, hence, depends on the equilibrium price, which is in turn random.

  3. 3.

    Sunspots represent publicly observable extrinsic events that do not affect the fundamentals of the economy, i.e., do not affect the agents’ endowments, preferences, budget constraints and information.

References

  1. Abel, A. (1989) Asset prices under heterogeneous beliefs: implications for the equity premium puzzle. Mimeo.

    Google Scholar 

  2. Admati, A. (1985) A noisy rational expectations equilibrium for multi-asset securities markets. Econometrica, 53:629–657.

    Article  MathSciNet  MATH  Google Scholar 

  3. Admati, A. (1989) Information in financial markets: the rational expectations approach. In Financial Markets and Incomplete Information, S. Bhattacharya and G. Constantinindes (eds.), 139–152.

    Google Scholar 

  4. Admati, A. and Pfleiderer, P. (1986) A monopolistic market for information. Journal of Economic Theory, 39:400–438.

    Article  MATH  Google Scholar 

  5. Admati, A. and Pfleiderer, P. (1990) Direct and indirect sale of information. Econometrica, 58:901–928.

    Article  MathSciNet  MATH  Google Scholar 

  6. Admati, A. and Pfleiderer, P. (2000) Forcing firms to talk: financial disclosure regulation and externalities. Review of Financial Studies, 13:479–519.

    Article  Google Scholar 

  7. Allen, B. (1981) Generic existence of completely revealing equilibria for economies with uncertainty when prices convey information. Econometrica, 49:1173–1199.

    Article  MathSciNet  MATH  Google Scholar 

  8. Allen, B. (1982) Strict rational expectations equilibria with diffuseness. Journal of Economic Theory, 27:20–46.

    Article  MathSciNet  MATH  Google Scholar 

  9. Allen, F., Morris, S. and Postlewaite, A. (1993) Finite bubbles with short sale constraints and asymmetric information. Journal of Economic Theory, 61:206–229.

    Article  MATH  Google Scholar 

  10. Allen, F., Morris, S. and Shin, S. (2006) Beauty contests and iterated expectations in asset markets. Review of Financial Studies, 19:719–752.

    Article  Google Scholar 

  11. Amihud, Y. (2002) Illiquidity and stock returns: cross–sectional and time series effects. Journal of Financial Markets, 5:31–56.

    Article  Google Scholar 

  12. Ausubel, L. (1990a) Partially revealing rational expectations equilibrium in a competitive economy. Journal of Economic Theory, 50:93–126.

    Article  MathSciNet  MATH  Google Scholar 

  13. Avramov, D., Chordia, T. and Goyal, A. (2006) Liquidity and autocorrelations in individual stock returns. Journal of Finance, 61:2365–2394.

    Article  Google Scholar 

  14. Bacchetta, P. and van Wincoop, E. (2008) Higher order expectations in asset pricing. Journal of Money, Credit and Banking, 40:837–866.

    Article  Google Scholar 

  15. Baker, M. and Stein, J. (2004) Market liquidity as a sentiment indicator. Journal of Financial Markets, 7:271–299.

    Article  Google Scholar 

  16. Baker, M. and Wurgler, J. (2006) Investor sentiment and the cross-section of stock returns. Journal of Finance, 61:1645–1680.

    Article  Google Scholar 

  17. Baker, M. and Wurgler, J. (2007) Investor sentiment in the stock market. Journal of Economic Perspectives, 21:129–151.

    Article  Google Scholar 

  18. Baker, M., Wurgler, J. and Yuan, Y. (2012) Global, local, and contagious investor sentiment. Journal of Financial Economics, 104:272–287.

    Article  Google Scholar 

  19. Bamber, L., Barron, O. and Stober, T. (1999) Differential interpretations and trading volume. Journal of Financial and Quantitative Analysis, 34:369–386.

    Article  Google Scholar 

  20. Banerjee, S. (2011) Learning from prices and the dispersion in beliefs. Review of Financial Studies, 24:3025–3068.

    Article  Google Scholar 

  21. Banerjee, S. and Kremer, I. (2010) Disagreement and learning: dynamic patterns of trade. Journal of Finance, 55:1269–1302.

    Article  Google Scholar 

  22. Banerjee, S., Kaniel, R. and Kremer, I. (2009) Price drift as an outcome of differences in higher-order beliefs. Review of Financial Studies, 22:3707–3743.

    Article  Google Scholar 

  23. Barclay, M., Litzenberger, R. and Warner, J. (1990) Private information, trading volume, and stock–return variances. Review of Financial Studies, 3:233–253.

    Article  Google Scholar 

  24. Barclay, M. and Warner, J. (1993) Stealth trading and volatility. Journal of Financial Economics, 34:281–305.

    Article  Google Scholar 

  25. Barlevy, G. and Veronesi, P. (2000) Information acquisition in financial markets. Review of Economic Studies, 67:79–90.

    Article  MATH  Google Scholar 

  26. Barlevy, G. and Veronesi, P. (2003) Rational panics and stock market crashes. Journal of Economic Theory, 110:234–263.

    Article  MathSciNet  MATH  Google Scholar 

  27. Barner, M., Feri, F. and Plott, C. (2005) On the microstructure of price determination and information aggregation with sequential and asymmetric information arrival in an experimental asset market. Annals of Finance, 1:73–107.

    Article  Google Scholar 

  28. Basak, S. (2002) A model of dynamic equilibrium asset pricing with heterogeneous beliefs and extraneous risk. Journal of Economic Dynamics and Control, 24:63–95.

    Article  MATH  Google Scholar 

  29. Berk, J. (1997) The acquisition of information in a dynamic market. Economic Theory, 9:441–451.

    Article  MATH  Google Scholar 

  30. Berk, J. and Uhlig, H. (1993) The timing of information in a general equilibrium framework. Journal of Economic Theory, 59:275–287.

    Article  MATH  Google Scholar 

  31. Bernardo, A. and Judd, K. (2000) Asset market equilibrium with general tastes, returns, and informational asymmetries. Journal of Financial Markets, 3:17–43.

    Article  Google Scholar 

  32. Berry, T. and Howe, K. (1994) Public information arrival. Journal of Finance, 49:1331–1346.

    Article  Google Scholar 

  33. Bessembinder, H., Chan, K. and Seguin, P. (1996) An empirical examination of information, differences of opinion, and trading activity. Journal of Financial Economics, 40:105–134.

    Article  Google Scholar 

  34. Bhattacharya, U. and Lipman, B. (1995) Ex ante versus interim rationality and the existence of bubbles. Economic Theory, 6:469–494.

    Article  MATH  Google Scholar 

  35. Bhattacharya, U. and Spiegel, M. (1991) Insiders, outsiders, and market breakdowns. Review of Financial Studies, 4:255–282.

    Article  Google Scholar 

  36. Biais, B. and Bossaerts, P. (1998) Asset prices and trading volume in a beauty contest. Review of Economic Studies, 65:307–340.

    Article  MATH  Google Scholar 

  37. Biais, B., Bossaerts, P. and Spatt, C. (2010) Equilibrium asset pricing and portfolio choice under asymmetric information. Review of Financial Studies, 23:1503–1543.

    Article  Google Scholar 

  38. Biais, B. and Germain, L. (2002) Incentive compatible contracts for the sale of information. Review of Financial Studies, 15:987–1003.

    Article  Google Scholar 

  39. Blackwell, D. (1951) Comparison of experiments. In Proceedings of the Second Berkeley Symposium on Mathematical Statistics and Probability, J. Neyman (ed.), University of California Press, Berkeley, 93–102.

    Google Scholar 

  40. Blume, L., Easley, D. and O’Hara, M. (1994) Market statistics and technical analysis: the role of volume. Journal of Finance, 49:153–179.

    Article  Google Scholar 

  41. Boehme, R., Danielsen, B. and Sorescu, S. (2006) Short-sale constraints, differences of opinion, and overvaluation. Journal of Financial and Quantitative Analysis, 41:455–487.

    Article  Google Scholar 

  42. Boot, A. and Thakor, A. (2001) The many faces of information disclosure. Review of Financial Studies, 14:1021–1057.

    Article  Google Scholar 

  43. Bossaerts, P., Frydman, C. and Ledyard, J. (2014) The speed of information revelation and eventual price quality in markets with insiders: comparing two theories. Review of Finance, 18:1–22.

    Article  Google Scholar 

  44. Brennan, M. and Cao, H. (1997) International portfolio flows. Journal of Finance, 52:1851–1880.

    Article  Google Scholar 

  45. Brennan, M. and Chordia, T. (1993) Brokerage commission schedules. Journal of Finance, 48:1379–1402.

    Article  Google Scholar 

  46. Brennan, M., Chordia, T. and Subrahmanyam, A. (1998) Alternative factor specifications, security characteristics and the cross expected stock returns. Journal of Financial Economics, 49:345–373.

    Article  Google Scholar 

  47. Brennan, M. and Subrahmanyam, A. (1996) Market microstructure and asset pricing: on the compensation for adverse selection in stock returns. Journal of Financial Economics, 41:341–364.

    Article  Google Scholar 

  48. Brown, D. and Jennings, R. (1989) On technical analysis. Review of Financial Studies, 2:527–552.

    Article  Google Scholar 

  49. Brunnermeier, M. (2001) Asset Pricing Under Asymmetric Information. Oxford University Press.

    Google Scholar 

  50. Camerer, C. (1989) Bubbles and fads in asset pricing. Journal of Economic Surveys, 3:3–41.

    Article  Google Scholar 

  51. Campbell, J., Grossman, S. and Wang, J. (1993) Trading volume and serial correlation in stock returns. Quarterly Journal of Economics, 108:905–939.

    Article  Google Scholar 

  52. Cao, H. (1999) The effect of derivative assets on information acquisition and price behavior in a rational expectations equilibrium. Review of Financial Studies, 12:131–163.

    Article  Google Scholar 

  53. Cao, H. and Ou-Yang, H. (2009) Differences of opinion of public information and speculative trading in stocks and options. Review of Financial Studies, 22:299–335.

    Article  Google Scholar 

  54. Caplin, A. and Lehay, J. (1994) Business as usual, market crashes, and wisdom after the fact. Quarterly Journal of Economics, 84:448–505.

    Google Scholar 

  55. Chae, J. (2005) Trading volume, information asymmetry, and timing information. Journal of Finance, 60:413–442.

    Article  Google Scholar 

  56. Chamley, C. (2008) On “acquisition of information in financial markets”. Review of Economic Studies, 75:1081–1084.

    Article  MATH  Google Scholar 

  57. Chan, K. and Fong, W. (2000) Trade size, order imbalance, and the volatility-volume relation. Journal of Financial Economics, 57:247–273.

    Article  Google Scholar 

  58. Chan, K., Hameed, A. and Tong, W. (2000) Profitability of momentum strategies in the international equity markets. Journal of Financial and Quantitative Analysis, 35:153–172.

    Article  Google Scholar 

  59. Chen, J., Hong, H. and Stein, J. (2001) Forecasting crashes: trading volume, past returns and conditional skewness in stock prices. Journal of Financial Economics, 61:311–344.

    Article  Google Scholar 

  60. Chen, J., Hong, H. and Stein, J. (2002) Breadth of ownership and stock returns. Journal of Financial Economics, 66:171–205.

    Article  Google Scholar 

  61. Chordia, T., Huh, S. and Subrahmanyam, A. (2007) The cross-section of expected trading activity. Review of Financial Studies, 20:709–740.

    Article  Google Scholar 

  62. Chordia, T., Subrahmanyam, A. and Anshuman, R. (2001) Trading activity and expected stock returns. Journal of Financial Economics, 59:3–32.

    Article  Google Scholar 

  63. Chordia, T. and Swaminathan, B. (2000) Trading volume and cross-autocorrelations in stock returns. Journal of Finance, 55:913–935.

    Article  Google Scholar 

  64. Citanna, A. and Villanacci, A. (2000) Existence and regularity of partially revealing rational expectations equilibrium in finite economies. Journal of Mathematical Economics, 34:1–26.

    Article  MathSciNet  MATH  Google Scholar 

  65. Conrad, J., Hameed, A. and Niden, C. (1994) Volume and autocovariances in short-horizon individual security returns. Journal of Finance, 49:1305–1329.

    Article  Google Scholar 

  66. Cutler, D., Poterba, J. and Summers, L. (1991) Speculative dynamics. Review of Economic Studies, 58:529–546.

    Article  Google Scholar 

  67. Datar, V., Naik, N. and Radcliffe, R. (1998) Liquidity and stock returns: an alternative test. Journal of Financial Markets 1:203–219.

    Article  Google Scholar 

  68. DeMarzo, P. and Skiadas, C. (1998) Aggregation, determinacy, and informational efficiency for a class of economies with asymmetric information. Journal of Economic Theory, 80:123–152.

    Article  MathSciNet  MATH  Google Scholar 

  69. DeMarzo, P. and Skiadas, C. (1999) On the uniqueness of fully informative rational expectations equilibria. Economic Theory, 13:1–24.

    Article  MathSciNet  MATH  Google Scholar 

  70. Detemple, J. and Murthy, S. (1994) Intertemporal asset pricing with heterogeneous beliefs. Journal of Economic Theory, 62:294–320.

    Article  MATH  Google Scholar 

  71. Diamond, D. (1985) Optimal release of information by firms. Journal of Finance, 40:1071–1094.

    Article  Google Scholar 

  72. Diamond, D. and Verrecchia, R. (1981) Information aggregation in a noisy rational expectations economy. Journal of Financial Economics, 9:221–235.

    Article  Google Scholar 

  73. Diamond, D. and Verrecchia, R. (1991) Disclosure, liquidity, and the cost of capital. Journal of Finance, 46:1325–1360.

    Article  Google Scholar 

  74. Diether, K., Lee, K. and Werner, I. (2008) Short-sale strategies and return predictability. Review of Financial Studies, 22:575–607.

    Article  Google Scholar 

  75. Diether, K., Malloy, C. and Scherbina, A. (2002) Differences of opinion and the cross section of stock returns. Journal of Finance, 57:2113–2141.

    Article  Google Scholar 

  76. Doukas, J., Kim, C. and Pantzalis, C. (2006) Divergence of opinion and equity returns. Journal of Financial and Quantitative Analysis, 41:573–606.

    Article  Google Scholar 

  77. Dow, J. and Gorton, G. (1995) Profitable informed trading in a simple general equilibrium model of asset pricing. Journal of Economic Theory, 67:327–369.

    Article  MATH  Google Scholar 

  78. Dow, J. and Rahi, R. (2003) Informed trading, investment, and welfare. Journal of Business, 76:439–454.

    Article  Google Scholar 

  79. Dumas, B., Kurshev, A. and Uppal, R. (2009) Equilibrium portfolio strategies in the presence of sentiment risk and excess volatility. Journal of Finance, 64:579–629.

    Article  Google Scholar 

  80. Easley, D., Hvidkjaer, S. and O’Hara, M. (2002) Is information risk a determinant of asset returns? Journal of Finance, 57:2185–2221.

    Article  Google Scholar 

  81. Easley, D., Kiefer, N. and O’Hara, M. (1997) One day in the life of a very common stock. Review of Financial Studies, 10:805–835.

    Article  Google Scholar 

  82. Eckwert, B. and Zilcha, I. (2001) The value of information in production economies. Journal of Economic Theory, 100:172–186.

    Article  MathSciNet  MATH  Google Scholar 

  83. Eckwert, B. and Zilcha, I. (2003) Incomplete risk sharing arrangements and the value of information. Economic Theory, 21:43–58.

    Article  MathSciNet  MATH  Google Scholar 

  84. Ederington, L. and Lee, H. (1993) How markets process information: news releases and volatility. Journal of Finance, 48:1161–1191.

    Article  Google Scholar 

  85. Eeckhoudt, L., Gollier, C. and Schlesinger, H. (2005) Economic and Financial Decisions under Risk. Princeton University Press.

    Google Scholar 

  86. Fama, E. (1970) Efficient capital markets: a review of theory and empirical work. Journal of Finance, 25:383–417.

    Article  Google Scholar 

  87. Figlewski, S. (1979) Subjective information and market efficiency in a betting market. Journal of Political Economy, 87:75–88.

    Article  Google Scholar 

  88. Figlewski, S. (1981) The informational effects of restrictions on short sales: some empirical evidence. Journal of Financial and Quantitative Analysis 16:463–476.

    Article  Google Scholar 

  89. Fishman, M. and Hagerty, K. (1989) Disclosure decisions by firms and the competition for price efficiency. Journal of Finance, 46:633–646.

    Article  Google Scholar 

  90. Fishman, M. and Hagerty, K. (1995) The incentive to sell financial market information. Journal of Financial Intermediation, 4:95–115.

    Article  Google Scholar 

  91. Forsythe, R. and Lundholm, R. (1990) Information aggregation in an experimental market. Econometrica, 58:309–347.

    Article  Google Scholar 

  92. Foster, D. and Viswanathan, S. (1993) The effect of public information and competition on trading volume and price volatility. Review of Financial Studies, 6:23–56.

    Article  Google Scholar 

  93. French, K. and Roll, R. (1986) Stock return and variances: the arrival of information and reaction of traders. Journal of Finance, 17:5–26.

    Google Scholar 

  94. Gallant, R., Rossi, P. and Tauchen, G. (1992) Stock prices and volume. Review of Financial Studies, 5:199–242.

    Article  Google Scholar 

  95. Gallant, R., Rossi, P. and Tauchen, G. (1993) Nonlinear dynamic structures. Econometrica, 61:871–907.

    Article  MathSciNet  MATH  Google Scholar 

  96. Ganguli, J. V. and Yang, L. (2009) Complementarities, multiplicity, and supply information. Journal of the European Economic Association, 7:90–115.

    Article  Google Scholar 

  97. Garcia, D. and Sangiorgi, F. (2011) Information sales and strategic trading. Review of Financial Studies, 24:3069–3104.

    Article  Google Scholar 

  98. Garcia, D. and Strobl, G. (2011) Relative wealth concerns and complementarities in information acquisition. Review of Financial Studies, 24:169–207.

    Article  Google Scholar 

  99. Garcia, D. and Vanden, J. (2009) Information acquisition and mutual funds. Journal of Economic Theory, 144:1965–1995.

    Article  MathSciNet  MATH  Google Scholar 

  100. Gollier, C. (2001) The Economics of Risk and Time. MIT Press, Cambridge.

    MATH  Google Scholar 

  101. Gottardi, P. and Rahi, R. (2014) Value of information in competitive economies with incomplete markets. International Economic Review, 55:1468–2354.

    Article  MathSciNet  MATH  Google Scholar 

  102. Green, J. (1973) Information, efficiency and equilibrium. Discussion paper n.284. Harvard University.

    Google Scholar 

  103. Green, J. (1981) Value of Information with Sequential Futures Markets Econometrica, 49:335–358.

    Google Scholar 

  104. Grossman, S. (1976) On the efficiency of competitive stock markets where traders have diverse information. Journal of Finance, 31:573–585.

    Article  Google Scholar 

  105. Grossman, S. (1978) Further results on the informational efficiency of competitive stock markets. Journal of Economic Theory, 18:81–101.

    Article  MathSciNet  MATH  Google Scholar 

  106. Grossman, S. (1981) An introduction to the theory of rational expectations under asymmetric information. Review of Economic Studies, 48:541–559.

    Article  MathSciNet  MATH  Google Scholar 

  107. Grossman, S. (1989) The Informational Role of Prices. MIT Press, Cambridge.

    Google Scholar 

  108. Grossman, S. and Stiglitz, J. (1980) On the impossibility of informationally efficient markets. The American Economic Review, 70:393–408.

    Google Scholar 

  109. Grundy, B. and Martin, S. (2001) Trade and revelation of information through prices and direct disclosure. Review of Financial Studies, 2:495–526.

    Article  Google Scholar 

  110. Grundy, B. and Kim, Y. (2002) Stock market volatility in a heterogeneous information economy. Journal of Financial and Quantitative Analysis, 37:1–27.

    Article  Google Scholar 

  111. Hankansson, N., Kunkel, G. and Ohlson, J. (1982) Sufficient and necessary conditions for information to have social value in pure exchange. Journal of Finance, 37:1169–1181.

    Article  Google Scholar 

  112. Harris, M. and Raviv, A. (1993) Differences of opinion make a horse race. Review of Financial Studies, 6:473–506.

    Article  Google Scholar 

  113. Harrison, M. and Kreps, D. (1978) Speculative investor behavior in a stock market with heterogeneous expectations. Quarterly Journal of Economics, 92:323–336.

    Article  MATH  Google Scholar 

  114. He, H. and Wang, J. (1995) Differential information and dynamic behavior of stock trading volume. Review of Financial Studies, 8:919–972.

    Article  Google Scholar 

  115. Healy, P. and Palepu, K. (2001) Information asymmetry, corporate disclosure, and the capital markets: a review of the empirical disclosure literature. Journal of Accounting and Economics, 31:405–440.

    Article  Google Scholar 

  116. Hellwig, M. (1980) On the aggregation of information in competitive markets. Journal of Economic Theory, 22:477–498.

    Article  MATH  Google Scholar 

  117. Hellwig, M. (1982) Rational expectations equilibrium with conditioning on past prices: a mean variance example. Journal of Economic Theory, 26:279–312.

    Article  MathSciNet  MATH  Google Scholar 

  118. Hirshleifer, D., Subrahmanyam, A. and Titman, S. (1994) Security analysis and trading patterns when some investors receive information before others. Journal of Finance, 49:1664–1698.

    Article  Google Scholar 

  119. Hirshleifer, J. (1971) The private and social value of information and the reward to inventive activity. The American Economic Review, 61:561–574.

    Google Scholar 

  120. Holmstrom, B. and Myerson, R.B. (1983) Efficient and durable decision rules with incomplete information. Econometrica, 51:1799–1819.

    Article  MATH  Google Scholar 

  121. Hong, H., Scheinkman, J. and Xiong, W. (2006) Asset float and speculative bubbles. Journal of Finance, 61:1073–1117.

    Article  Google Scholar 

  122. Hong, H. and Stein, J. (2003) Differences of opinion, rational arbitrage and market crashes. Review of Financial Studies, 16:487–525.

    Article  Google Scholar 

  123. Hong, H. and Stein, J. (2007) Disagreement and the stock market. Journal of Economic Perspectives, 21:109–128.

    Article  Google Scholar 

  124. Huang, C. and Litzenberger, R. (1988) Foundations for Financial Economics. North-Holland, Amsterdam.

    MATH  Google Scholar 

  125. Huberman, G. and Schwert, W. (1985) Information aggregation, inflation, and the pricing of indexed bonds. Journal of Political Economy, 93:92–114.

    Article  Google Scholar 

  126. Hussman, J. (1992) Market efficiency and inefficiency in rational expectations equilibria. Journal of Economic Dynamics and Control, 16:655–680.

    Article  MATH  Google Scholar 

  127. Jackson, M. (1994) A proof of the existence of speculative equilibria. Journal of Economic Theory, 64:221–233.

    Article  MATH  Google Scholar 

  128. Jackson, M. and Peck, J. (1991) Speculation and price fluctuations with private, extrinsic signals. Journal of Economic Theory, 55:274–295.

    Article  MATH  Google Scholar 

  129. Jensen, M. (1978) Some anomalous evidence regarding market efficiency. Journal of Financial Economics, 6:95–101.

    Article  Google Scholar 

  130. Johnson, T. (2004) Forecast dispersion and the cross section of expected returns. Journal of Finance, 59:1957–1978.

    Article  Google Scholar 

  131. Jones, C., Kaul, G. and Lipson, M. (1994) Information, trading, and volatility. Journal of Financial Economics, 36:127–154.

    Article  Google Scholar 

  132. Jones, C., Kaul, G. and Lipson, M. (1994) Transactions, volume and volatility. Review of Financial Studies, 7:631–651.

    Article  Google Scholar 

  133. Jordan, J. (1982) The generic existence of rational expectations equilibrium in the higher dimensional case. Journal of Economic Theory, 26:2224–2243.

    MathSciNet  Google Scholar 

  134. Jordan, J. (1983) On the efficient markets hypothesis. Econometrica, 51:1325–1343.

    Article  MathSciNet  MATH  Google Scholar 

  135. Jordan, J. and Radner, R. (1982) Rational expectations in microeconomic models: an overview. Journal of Economic Theory, 26:201–223.

    Article  MathSciNet  MATH  Google Scholar 

  136. Kandel, S. and Pearson, N. (1995) Differential interpretation of public signals and trade in speculative markets. Journal of Political Economy, 103:831–872.

    Article  Google Scholar 

  137. Kang, J. and Stulz, R. (1997) Why is there a home bias? An analysis of foreign portfolio equity ownership in Japan. Journal of Financial Economics, 46:3–28.

    Article  Google Scholar 

  138. Karpoff, J. (1987) The relation between price changes and trading volume: a survey. Journal of Financial and Quantitative Analysis, 22:109–126.

    Article  Google Scholar 

  139. Kelly, B. and Ljungqvist, A. (2012) Testing asymmetric-information asset pricing models. Review of Financial Studies, 25:1366–1413.

    Article  Google Scholar 

  140. Kim, O. and Verrecchia, R. (1991) Market reaction to anticipated announcements. Journal of Financial Economics, 30:273–309.

    Article  Google Scholar 

  141. Kim, O. and Verrecchia, R. (1991) Trading volume and price reactions to public announcements. Journal of Accounting Research, 29:302–321.

    Article  Google Scholar 

  142. Kim, O. and Verrecchia, R. (1994) Market liquidity and volume around earnings announcements. Journal of Accounting and Economics, 17:41–67.

    Article  Google Scholar 

  143. Kondor, P. (2012) The more we know about the fundamental, the less we agree on the price. Review of Economic Studies, 79:1175–1207.

    Article  MathSciNet  Google Scholar 

  144. Krebs, T. (2007) Rational expectations equilibrium and the strategic choice of costly information. Journal of Mathematical Economics, 43:532–548.

    Article  MathSciNet  MATH  Google Scholar 

  145. Kreps, D. (1977) A note on fulfilled expectations equilibria. Journal of Economic Theory, 14:32–44.

    Article  MathSciNet  MATH  Google Scholar 

  146. Laffont, J. (1985) On the welfare analysis of rational expectations equilibria with asymmetric information. Econometrica, 53:1–30.

    Article  MathSciNet  MATH  Google Scholar 

  147. Laffont, J. (1989) The Economics of Uncertainty and Information. MIT Press, Cambridge.

    Google Scholar 

  148. Lambert, R., Leuz, C. and Verrecchia, R. (2007) Accounting information, disclosure, and the cost of capital. Journal of Accounting Research, 45:385–420.

    Article  Google Scholar 

  149. Lang, L., Litzenberger, R. and Madrigal, V. (1992) Testing financial market equilibrium under asymmetric information. Journal of Political Economy, 100:317–348.

    Article  Google Scholar 

  150. Lee, C. and Swaminathan, B. (2000) Price momentum and trading volume. Journal of Finance, 55:2017–2069.

    Article  Google Scholar 

  151. Leuz, C. and Verrecchia, R. (2000) The economic consequences of increased disclosure. Journal of Accounting Research, 38:91–124.

    Article  Google Scholar 

  152. Llorente, G., Michaely, R., Saar, G. and Wang, J. (2002) Dynamic volume-return relation of individual stocks. Review of Financial Studies, 15:1005–1047.

    Article  Google Scholar 

  153. Lucas, R. (1972) Expectations and the neutrality of money. Journal of Economic Theory, 2:103–104.

    Article  MathSciNet  Google Scholar 

  154. Madhavan, A., Richardosn, M. and Roomans, M. (1997) Why do security prices change? A transaction-level analysis of NYSE stocks. Review of Financial Studies, 10:1035–1064.

    Article  Google Scholar 

  155. Madrigal, V. and Smith, S. (1995) On fully revealing prices when markets are incomplete. The American Economic Review, 85:1152–1159.

    Google Scholar 

  156. Makarov, I. and Rytchkov, O. (2012) Forecasting the forecasts of others: implications for asset pricing. Journal of Economic Theory, 147:941–966.

    Article  MathSciNet  MATH  Google Scholar 

  157. Manzano, C. and Vives, A. (2011) Public and private learning from prices, strategic substitutability and complementarity, and equilibrium multiplicity. Journal of Mathematical Economics, 47:346–369.

    Article  MathSciNet  MATH  Google Scholar 

  158. Marin, J. and Rahi, R. (1999) Speculative securities. Economic Theory, 14:653–668.

    Article  MathSciNet  MATH  Google Scholar 

  159. Marin, J. and Rahi, R. (2000) Information revelation and market incompleteness. Review of Economic Studies, 67:563–589.

    Article  MATH  Google Scholar 

  160. Mas-Colell, A., Whinston, M. and Green, J. (1995) Microeconomic Theory. Oxford University Press.

    Google Scholar 

  161. McKelvey R. and Page, T. (1990) Public and private information: an experimental study of information pooling. Econometrica, 58:1321–1339.

    Article  MATH  Google Scholar 

  162. Michaely, R. and Vila, J. (1996) Trading volume with private valuation: evidence from the ex-dividend day. Review of Financial Studies, 9:471–509.

    Article  Google Scholar 

  163. Michaely, R., Vila, J. and Wang, J. (1996) A model of trading volume with tax-induced heterogeneous valuation and transaction costs. Journal of Financial Intermediation, 5:340–371.

    Article  Google Scholar 

  164. Milgrom, P. and Stokey, N. (1982) Information, trade and common knowledge. Journal of Economic Theory, 26:17–27.

    Article  MATH  Google Scholar 

  165. Miller, E. (1977) Risk, uncertainty, and divergence of opinion. Journal of Finance 32:1151–1168.

    Article  Google Scholar 

  166. Mitchell, M. and Mulherin, H. (1994) The impact of public information on the stock market. Journal of Finance, 49:923–950.

    Article  Google Scholar 

  167. Moinas, S. and Pouget, S. (2013) The bubble game: an experimental study of speculation. Econometrica, 81:1507–1539.

    Article  MathSciNet  MATH  Google Scholar 

  168. Morris, S. (1994) Trade with heterogeneous prior beliefs and asymmetric information. Econometrica, 62:1327–1347.

    Article  MATH  Google Scholar 

  169. Morris, S. (1996) Speculative investor behavior and learning. Quarterly Journal of Economics, 111:1111–1131.

    Article  MATH  Google Scholar 

  170. Muendler, M.A. (2007) The possibility of informationally efficient markets. Journal of Economic Theory, 133:467–483.

    Article  MathSciNet  MATH  Google Scholar 

  171. Naik, N. (1997) On the aggregation of information in competitive markets: the dynamic case. Journal of Economic Dynamics and Control, 21:1199–1227.

    Article  MATH  Google Scholar 

  172. Naik, N. (1997) Multi-period information markets. Journal of Economic Dynamics and Control, 21:1229–1258.

    Article  MathSciNet  MATH  Google Scholar 

  173. Orosel, G. (1996) Informational efficiency and welfare in the stock market. European Economic Review, 40:1379–1411.

    Article  Google Scholar 

  174. Palfrey, T. and Wang, S. (2012) Speculative overpricing in asset markets with information flows. Econometrica, 80:1937–1976.

    Article  MathSciNet  MATH  Google Scholar 

  175. Peress, J. (2004) Wealth, information acquisition and portfolio choice. Review of Financial Studies, 17:879–914.

    Article  Google Scholar 

  176. Peress, J. (2011) Erratum to “Wealth, information acquisition and portfolio choice”. Review of Financial Studies, 24:3187–3195.

    Article  Google Scholar 

  177. Pietra, T. and Siconolfi, P. (1998) Fully revealing equilibria in sequential economies with asset markets. Journal of Mathematical Economics, 29:211–223.

    Article  MathSciNet  MATH  Google Scholar 

  178. Plott, C. and Sunder, S. (1988) Rational expectations and the aggregation of diverse information in laboratory security markets. Econometrica, 56:1085–1118.

    Article  Google Scholar 

  179. Polemarchakis, H. and Siconolfi, P. (1993) Asset markets and the information revealed by prices. Economic Theory, 3:645–661.

    Article  MATH  Google Scholar 

  180. Radner, R. (1979) Rational expectations equilibrium: generic existence and the information revealed by price. Econometrica, 47:655–678.

    Article  MathSciNet  MATH  Google Scholar 

  181. Radner, R. (1982) Equilibrium under uncertainty. In Handbook of Mathematical Economics (Vol.I), K. Arrow and M. Intriligator (eds.), Elsevier Science Publisher.

    Google Scholar 

  182. Rahi, R. (1985) Partially revealing rational expectations equilibria with nominal assets. Journal of Mathematical Economics, 24:137–146.

    Article  MATH  Google Scholar 

  183. Roll, R. (1984) Orange juice and weather. The American Economic Review, 74:861–880.

    Google Scholar 

  184. Roll, R. (1988) R 2. Journal of Finance, 43:541–566.

    Google Scholar 

  185. Romer, D. (1993) Rational asset-price movements without news. The American Economic Review, 83:1112–1130.

    Google Scholar 

  186. Ross, S. (1989) Information and volatility: the no arbitrage martingale approach to timing and resolution irrelevance. Journal of Finance, 44:1–18.

    Article  Google Scholar 

  187. Rubinstein, M. (1975) Securities market efficiency in an Arrow-Debreu economy. The American Economic Review, 65:812–824.

    Google Scholar 

  188. Sadka, R. and Scherbina, A. (2007) Analyst disagreement, mispricing, and liquidity. Journal of Finance, 62: 2367–2403.

    Article  Google Scholar 

  189. Scheinkman, J. and Xiong, W. (2003) Overconfidence and speculative bubbles. Journal of Political Economy, 111:1183–1219.

    Article  Google Scholar 

  190. Scheinkman, J. and Xiong, W. (2004) Heterogeneous beliefs, speculation and trading in financial markets. Paris-Princeton Lectures on Mathematical Finance 2003, Lecture Notes in Mathematics Volume 1847, 217–250.

    Google Scholar 

  191. Schlee, E. (2001) The value of information in efficient risk-sharing arrangements The American Economic Review, 91:509–524.

    Google Scholar 

  192. Schmeidler, D. (1989) A rational expectations equilibrium with informative trading volume. Journal of Finance, 64:2783–2805.

    Google Scholar 

  193. Shalen, C. (1993) Volume, volatility, and the dispersion of beliefs. Review of Financial Studies, 6:405–34.

    Article  Google Scholar 

  194. Simsek, A. (2013) Belief disagreements and collateral constraints. Econometrica, 81:1–53.

    Article  MathSciNet  MATH  Google Scholar 

  195. Singleton, K. (1987) Asset prices in a time series model with disparately informed competitive traders. In New Approaches to Monetary Economics, W. Barnett and K. Signleton (eds.), North-Holland, Amsterdam.

    Google Scholar 

  196. Smith, V., Suchanek, G. and Williams, W. (1988) Bubbles, crashes and endogenous expectations in experimental spot asset markets. Econometrica, 56:1119–1151.

    Article  Google Scholar 

  197. Spiegel, M. and Subrahmanyam, A. (2000) Asymmetric information and news disclosure rules. Journal of Financial Intermediation, 9:363–403.

    Article  Google Scholar 

  198. Stambaugh, R., Yu, J. and Yuan, Y. (2012) The short of it: investor sentiment and anomalies. Journal of Financial Economics, 104:288–302.

    Article  Google Scholar 

  199. Stoll, H. and Whaley, R. (1990) Stock market structure and volatility. Review of Financial Studies, 3:37–71.

    Article  Google Scholar 

  200. Sunder, S. (1992) Market for information: experimental evidence. Econometrica, 60:667–695.

    Article  MATH  Google Scholar 

  201. Teoh, S. and Hwang, C. (1991) Nondisclosure and adverse disclosure as signals of firm value. Review of Financial Studies, 4:283–313.

    Article  Google Scholar 

  202. Tetlock, P. (2010) Does public financial news resolve asymmetric information. Review of Financial Studies, 23:3520–3557.

    Article  Google Scholar 

  203. Tirole, J. (1982) On the possibility of speculation under rational expectations. Econometrica, 50:1163–1181.

    Article  MATH  Google Scholar 

  204. Townsend, R. (1983) Forecasting the forecasts of others. Journal of Political Economy, 91:546–588.

    Article  Google Scholar 

  205. Van Nieuwerburgh, S. and Veldkamp, L. (2009) Information immobility and the home bias puzzle. Journal of Finance 64:1187–1215.

    Article  Google Scholar 

  206. Van Nieuwerburgh, S. and Veldkamp, L. (2010) Information acquisition and under-diversification. Review of Economic Studies, 77:779–805.

    Article  MathSciNet  MATH  Google Scholar 

  207. Varian, H. (1989) Differences in opinion in financial markets. In Financial Risk: Theory, Evidence and Implications, C. Stone (ed.), Kluwer Academic Publishers.

    Google Scholar 

  208. Veldkamp, L. (2006) Information markets and the comovement of asset prices. Review of Economic Studies, 73:823–845.

    Article  MathSciNet  MATH  Google Scholar 

  209. Verrecchia, R. (1982) Information acquisition in a noisy rational expectations economy. Econometrica, 50:1415–1430.

    Article  MATH  Google Scholar 

  210. Verrecchia, R. (1993) Insider trading and the voluntary disclosure of information by firms. Journal of Banking and Finance, 24:395–425.

    Google Scholar 

  211. Verrecchia, R. (1993) Discretionary disclosure. Journal of Accounting and Economics, 5:179–194.

    Article  Google Scholar 

  212. Verrecchia, R. (2001) Essays on disclosure. Journal of Accounting and Economics, 32:97–180.

    Article  Google Scholar 

  213. Vives, X. (2008) Information and Learning in Markets. Princeton University Press.

    Google Scholar 

  214. Vives, X. (2014) On the possibility of informationally efficient markets. Journal of the European Economic Association, 12:1200–1239.

    Article  Google Scholar 

  215. Wang, J. (1993) A model of intertemporal asset prices under asymmetric information. Review of Economic Studies, 60:249–282.

    Article  MATH  Google Scholar 

  216. Wang, J. (1994) A model of competitive stock trading volume. Journal of Political Economy, 102:127–168.

    Article  Google Scholar 

  217. Watanabe, M. (2008) Price volatility and investor behavior in an overlapping generations model with information asymmetry. Journal of Finance, 63:229–272.

    Article  Google Scholar 

  218. Yu, J. (2011) Disagreement and return predictability of stock portfolios. Journal of Financial Economics, 99:162–183.

    Article  Google Scholar 

  219. Xiong, W. and Hongjun, Y. (2010) Heterogeneous expectations and bond markets. Review of Financial Studies, 23:1433–1466.

    Article  Google Scholar 

  220. Zapatero, F. (1998) Effects of financial innovations on market volatility when beliefs are heterogeneous. Journal of Economic Dynamics and Control, 22:597–626.

    Article  MathSciNet  MATH  Google Scholar 

  221. Zhang, F. (2006) Information uncertainty and stock returns. Journal of Finance, 61:105–137.

    Article  Google Scholar 

  222. Zhou, C. (1998) Dynamic portfolio choice and asset pricing with differential information. Journal of Economic Dynamics and Control, 22:1027–1051.

    Article  MATH  Google Scholar 

  223. Zhou, C. (1999) Informational asymmetry and market imperfections: another solution to the equity premium puzzle. Journal of Financial and Quantitative Analysis, 34:445–464.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Dipartimento di Matematica, Politecnico di Milano, Milano, Italy

    Emilio Barucci

  2. Laboratoire de Probabilités et Modèles Aléatoires, Université Paris Diderot (Paris 7), Paris, France

    Claudio Fontana

Authors
  1. Emilio Barucci
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Claudio Fontana
    View author publications

    You can also search for this author in PubMed Google Scholar

Rights and permissions

Reprints and permissions

Copyright information

© 2017 Springer-Verlag London Ltd.

About this chapter

Cite this chapter

Barucci, E., Fontana, C. (2017). Information and Financial Markets. In: Financial Markets Theory. Springer Finance(). Springer, London. https://doi.org/10.1007/978-1-4471-7322-9_8

Download citation

Publish with us

Policies and ethics

Search

Navigation