Dynamic Information Regimes in Financial Markets

Paul Glasserman (), Harry Mamaysky () and Yiwen Shen ()
Additional contact information
Paul Glasserman: Columbia Business School, New York, New York 10027
Harry Mamaysky: Columbia Business School, New York, New York 10027
Yiwen Shen: School of Business and Management, Hong Kong University of Science and Technology, Clear Water Bay, Kowloon 999077, Hong Kong

Management Science, 2024, vol. 70, issue 9, 6069-6092

Abstract: We develop a model of investor information choices and asset prices in which the availability of information about fundamentals is time-varying and responds to investor demand for information. A competitive research sector produces more information when more investors are willing to pay for that research. This feedback, from investor willingness to pay for information to more information production, generates two regimes in equilibrium, one having high prices and low volatility, the other the opposite. The low-price, high-volatility regime is associated with greater information asymmetry between informed and uninformed investors. Information dynamics move the market between regimes, creating large price drops even with no change in fundamentals. In our calibration, the model suggests an important role for information dynamics in financial crises.

Keywords: finance: asset pricing; asymmetric information; financial crises; information dynamics; general equilibrium (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.2021.01213 (application/pdf)

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:inm:ormnsc:v:70:y:2024:i:9:p:6069-6092

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().