Information and Financial Markets

Emilio Barucci and Claudio Fontana
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Emilio Barucci: Politecnico di Milano
Claudio Fontana: Université Paris Diderot (Paris 7)

Chapter Chapter 8 in Financial Markets Theory, 2017, pp 397-477 from Springer

Abstract: Abstract This chapter concerns the role of information in financial markets. The chapter starts by studying the value of information from the point of view of an individual agent and then proceeds by analysing the impact of information in the economy. This leads to the introduction of the notion of Green-Lucas equilibrium and, in particular, to the question of whether equilibrium prices transmit, aggregate and reveal the agents’ private information. This concept is intrinsically linked to the informational efficiency of financial markets and provides a microfoundation to the efficient markets theory. In the chapter, the possibility or the impossibility of informationally efficient markets is discussed and established in the context of several models. The chapter closes by briefly examining the case where agents may exhibit heterogeneous opinions and surveying the empirical evidence on the informational efficiency of financial markets.

Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprfcp:978-1-4471-7322-9_8

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DOI: 10.1007/978-1-4471-7322-9_8

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