Volatility and Informativeness
Volatility and Informativeness

Author: Eduardo Dávila

Publisher:

Published: 2019

Total Pages: 51

ISBN-13:

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We explore the equilibrium relation between price volatility and price informativeness in financial markets, with the ultimate goal of characterizing the type of inferences that can be drawn about price informativeness by observing price volatility. We identify two different channels (noise reduction and equilibrium learning) through which changes in price informativeness are associated with changes in price volatility. We show that when informativeness is sufficiently high (low) volatility and informativeness positively (negatively) comove in equilibrium for any change in primitives. In the context of our leading application, we provide conditions on primitives that guarantee that volatility and informativeness always comove positively or negatively. We use data on U.S. stocks between 1963 and 2017 to recover stock-specific primitives and find that most stocks lie in the region of the parameter space in which informativeness and volatility comove negatively.

Volatility and Informativeness
Volatility and Informativeness

Author: Eduardo Dávila

Publisher:

Published: 2019

Total Pages: 0

ISBN-13:

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We explore the equilibrium relation between price volatility and price informativeness in financial markets, with the ultimate goal of characterizing the type of inferences that can be drawn about price informativeness by observing price volatility. We identify two different channels (noise reduction and equilibrium learning) through which changes in price informativeness are associated with changes in price volatility. We show that when informativeness is sufficiently high (low) volatility and informativeness positively (negatively) comove in equilibrium for any change in primitives. In the context of our leading application, we provide conditions on primitives that guarantee that volatility and informativeness always comove positively or negatively. We use data on U.S. stocks between 1963 and 2017 to recover stock-specific primitives and find that most stocks lie in the region of the parameter space in which informativeness and volatility comove negatively.

Does More Information in Stock Price Lead to Greater or Smaller Idiosyncratic Return Volatility?
Does More Information in Stock Price Lead to Greater or Smaller Idiosyncratic Return Volatility?

Author: Dong Wook Lee

Publisher:

Published: 2010

Total Pages: 61

ISBN-13:

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We investigate the relation between price informativeness and idiosyncratic return volatility in a multi-asset, multi-period noisy rational expectations equilibrium. Idiosyncratic return volatility is decomposed into two parts: (1) the part caused by noise, and (2) the part caused by information regarding the firm's fundamental value. We show that the first component decreases with price informativeness, while the second component first decreases and then increases with price informativeness. Our main results are as follows. First, there exist no parameter values such that idiosyncratic return volatility increases monotonically with price informativeness. Second, there exist parameter values such that the relation between price informativeness and idiosyncratic return volatility is U-shaped. Finally, there exist parameter values such that idiosyncratic return volatility decreases monotonically with price informativeness. Using several price informativeness measures, we empirically document a U-shaped relation between price informativeness and idiosyncratic return volatility. Our study therefore reconciles the opposing views expressed in the following two strands of literature: (1) the growing body of research showing that firms with more informative stock prices have greater idiosyncratic return volatility (e.g., Morck, Yeung, and Yu (2000)), and (2) the studies arguing that more information in price reduces idiosyncratic return volatility (e.g., West (1988) and Kelly (2005)).

The Effect of CEO Power on the Informativeness of Stock Prices
The Effect of CEO Power on the Informativeness of Stock Prices

Author: Pradit Withisuphakorn

Publisher:

Published: 2015

Total Pages: 13

ISBN-13:

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Motivated by agency theory, we explore how powerful CEOs influence the extent of stock price informativeness. Using idiosyncratic volatility to measure stock price informativeness, we find that firms with more powerful CEOs experience a more opaque information environment. This is consistent with the notion that more powerful CEOs tend to be more entrenched and are more likely to take actions that do not maximize shareholders' wealth. To conceal their opportunistic actions, they are less likely to disclose information, resulting in more information asymmetry and therefore lower stock price informativeness. Our additional results based on propensity score matching also confirm the conclusion.

Information and Learning in Markets
Information and Learning in Markets

Author: Xavier Vives

Publisher: Princeton University Press

Published: 2010-01-25

Total Pages: 422

ISBN-13: 140082950X

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The ways financial analysts, traders, and other specialists use information and learn from each other are of fundamental importance to understanding how markets work and prices are set. This graduate-level textbook analyzes how markets aggregate information and examines the impacts of specific market arrangements--or microstructure--on the aggregation process and overall performance of financial markets. Xavier Vives bridges the gap between the two primary views of markets--informational efficiency and herding--and uses a coherent game-theoretic framework to bring together the latest results from the rational expectations and herding literatures. Vives emphasizes the consequences of market interaction and social learning for informational and economic efficiency. He looks closely at information aggregation mechanisms, progressing from simple to complex environments: from static to dynamic models; from competitive to strategic agents; and from simple market strategies such as noncontingent orders or quantities to complex ones like price contingent orders or demand schedules. Vives finds that contending theories like informational efficiency and herding build on the same principles of Bayesian decision making and that "irrational" agents are not needed to explain herding behavior, booms, and crashes. As this book shows, the microstructure of a market is the crucial factor in the informational efficiency of prices. Provides the most complete analysis of the ways markets aggregate information Bridges the gap between the rational expectations and herding literatures Includes exercises with solutions Serves both as a graduate textbook and a resource for researchers, including financial analysts

The Oxford Handbook of Applied Bayesian Analysis
The Oxford Handbook of Applied Bayesian Analysis

Author: Anthony O' Hagan

Publisher: OUP Oxford

Published: 2010-03-18

Total Pages: 924

ISBN-13: 0191613894

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Bayesian analysis has developed rapidly in applications in the last two decades and research in Bayesian methods remains dynamic and fast-growing. Dramatic advances in modelling concepts and computational technologies now enable routine application of Bayesian analysis using increasingly realistic stochastic models, and this drives the adoption of Bayesian approaches in many areas of science, technology, commerce, and industry. This Handbook explores contemporary Bayesian analysis across a variety of application areas. Chapters written by leading exponents of applied Bayesian analysis showcase the scientific ease and natural application of Bayesian modelling, and present solutions to real, engaging, societally important and demanding problems. The chapters are grouped into five general areas: Biomedical & Health Sciences; Industry, Economics & Finance; Environment & Ecology; Policy, Political & Social Sciences; and Natural & Engineering Sciences, and Appendix material in each touches on key concepts, models, and techniques of the chapter that are also of broader pedagogic and applied interest.

Advances in Econometrics, Income Distribution and Scientific Methodology
Advances in Econometrics, Income Distribution and Scientific Methodology

Author: Daniel J. Slottje

Publisher: Springer Science & Business Media

Published: 2012-12-06

Total Pages: 392

ISBN-13: 3642936415

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Articles on econometric methodology with special reference to the quantification of poverty and economic inequality are presented in this book. Poverty and inequality measurement present special problems to the econometrician, and most of these papers analyze how to attack those problems. The topics and contributions in the book are a very good representation of Camilo Dagum's astounding diversity of interests and overall eclecticism. Several of the authors are leading pioneers in econometric methodology. Several others are pioneers in economic theory and others are the leading applied economists in income distribution analysis in the world. The topics accurately reflect Camilo Dagum's breadth of understanding across varios economic sub-fields, all complex in nature.

Information Choice in Macroeconomics and Finance
Information Choice in Macroeconomics and Finance

Author: Laura L. Veldkamp

Publisher: Princeton University Press

Published: 2011-08-22

Total Pages: 181

ISBN-13: 140084049X

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An authoritative graduate textbook on information choice, an exciting frontier of research in economics and finance Most theories in economics and finance predict what people will do, given what they know about the world around them. But what do people know about their environments? The study of information choice seeks to answer this question, explaining why economic players know what they know—and how the information they have affects collective outcomes. Instead of assuming what people do or don't know, information choice asks what people would choose to know. Then it predicts what, given that information, they would choose to do. In this textbook, Laura Veldkamp introduces graduate students in economics and finance to this important new research. The book illustrates how information choice is used to answer questions in monetary economics, portfolio choice theory, business cycle theory, international finance, asset pricing, and other areas. It shows how to build and test applied theory models with information frictions. And it covers recent work on topics such as rational inattention, information markets, and strategic games with heterogeneous information. Illustrates how information choice is used to answer questions in monetary economics, portfolio choice theory, business cycle theory, international finance, asset pricing, and other areas Teaches how to build and test applied theory models with information frictions Covers recent research on topics such as rational inattention, information markets, and strategic games with heterogeneous information