Kondor, Peter (2004) The more we know, the less we agree: public announcements and higher-order expectations. Financial Markets Group Discussion Papers (532). Financial Markets Group, The London School of Economics and Political Science, London, UK.
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Abstract
The stylized fact that public announcements in financial markets are followed by intense trading, high trading volume and volatile prices, is widely perceived as the sign of increasing disagreement due to the announcement. However, it is common to argue that this would be inconsistent with Bayesian-learning and common priors. In this paper, we not only show that — with certain information structures — increasing disagreement is possible in a Bayesian model, but we also argue that with the assumption that traders trade for resale — so they try to second guess future traders’ guesses — there are information structures which are simple, intuitive and plausible and result in increasing disagreement even in a standard, multi-period Grossman—Stiglitz model.
| Item Type: | Monograph (Discussion Paper) |
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| Official URL: | https://www.fmg.ac.uk/ |
| Additional Information: | © 2004 The Author |
| Divisions: | Financial Markets Group |
| Subjects: | H Social Sciences > HF Commerce H Social Sciences > HG Finance H Social Sciences > HB Economic Theory |
| JEL classification: | G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D84 - Expectations; Speculations G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions |
| Date Deposited: | 29 Jul 2009 11:02 |
| Last Modified: | 15 Sep 2023 22:57 |
| URI: | http://eprints.lse.ac.uk/id/eprint/24645 |
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