The value of diffusing information

Asaf Manela

Journal of Financial Economics, 2014, vol. 111, issue 1, 181-199

Abstract: How does the speed by which information diffuses affect its value to a stock market investor? In a structural model solved in closed-form, this speed has two opposing effects on the empirically dominant term of the value of information. Faster-diffusing information means quicker and less noisy profits, but, also increases competing informed trading, impounding more information into prices and eroding profits. Structural empirical analysis of stock market reaction to drug approvals using media coverage as a proxy for the transmission rate of information finds that the value of information is hump-shaped in its future transmission rate. Moreover, the estimated amount of noise trading is small.

Keywords: Value of information; Information diffusion; Percolation; Media coverage; Drug approvals (search for similar items in EconPapers)
JEL-codes: D82 D83 G12 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (20)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:111:y:2014:i:1:p:181-199

DOI: 10.1016/j.jfineco.2013.10.007

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