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Title: The more we know on the fundamental, the less we agree on the price

Author(s): Péter Kondor

Publication Date: June 2011

Keyword(s): higher-order expectations, public announcement and trading volume

Programme Area(s): Financial Economics

Abstract: I allow heterogenity in trading horizons across groups in a standard differential information model of a financial market. This can explain the empirical facts that after public announcements trading volume increases, more private information is incorporated into prices and volatility increases. Public information, in such environments, has the important secondary role of helping agents to learn about the information of other agents. As a consequence, whenever the correlation between private information across groups is sufficiently low, a public announcement increases disagreement among short horizon traders on the expected selling price, even if it decreases disagreement about the fundamental value of the asset. Additional testable implications are also suggested.

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Bibliographic Reference

Kondor, P. 2011. 'The more we know on the fundamental, the less we agree on the price'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=8455