Ambiguity, information acquisition and price swings in asset markets

Antonio Mele and Francesco Sangiorgi

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This paper studies asset markets in which ambiguity averse investors face Knightian uncertainty about expected payos. The same investors, however, might wish to resolve their uncertainty, although not risk, by just purchasing information. In these markets, uninformed and, hence, ambiguity averse, agents may coexist with informed agents, as a result of a rational information acquisition process. Moreover, there are complementaries in information acquisition, multiplicity of equilibria, history-dependent prices, and large price swings occurring after small changes in the uncertainty surrounding the asset expected payos. Our model suggests the importance of uncertainty, as a new channel for episodes of extreme price volatility, media frenzies and media glooms.

JEL-codes: G00 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2009-06-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

Downloads: (external link)
http://eprints.lse.ac.uk/24424/ Open access version. (application/pdf)

Related works:
Working Paper: Ambiguity, Information Acquisition and Price Swings in Asset Markets (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:24424

Access Statistics for this paper

More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC.
Bibliographic data for series maintained by LSERO Manager ().