Costly information transmission in continuous time with implications for credit rating announcements

Hefei Wang

Journal of Economic Dynamics and Control, 2012, vol. 36, issue 9, 1402-1413

Abstract: This paper formulates a continuous-time information transmission model in which an altruistic sender privately observes a stochastic state variable, and incurs a communication cost when she broadcasts a message. We characterize the sender's optimal announcement strategy using an ordinary differential equation. We prove the optimality of the sender's strategies using a martingale verification argument and show that the sender's optimal strategy involves sending discrete messages. Furthermore, we apply the model to the timing decision of credit rating announcements and provide a framework to study various aspects of rating announcements, such as the probability of rating reversals and the expected time before a rating change.

Keywords: Dynamic information transmission; Costly talk; Credit rating announcement (search for similar items in EconPapers)
JEL-codes: C61 D81 D83 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165188912000656
Full text for ScienceDirect subscribers only

Related works:
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:eee:dyncon:v:36:y:2012:i:9:p:1402-1413

DOI: 10.1016/j.jedc.2012.03.003

Access Statistics for this article

Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

More articles in Journal of Economic Dynamics and Control from Elsevier
Bibliographic data for series maintained by Catherine Liu ().