EconPapers    
Economics at your fingertips  
 

Learning from Prices: Information Aggregation and Accumulation in an Asset Price Model

Michele Berardi ()

Economics Discussion Paper Series from Economics, The University of Manchester

Abstract: Can prices convey information about the fundamental value of an asset? This paper considers this problem in relation to the dynamic properties of the fundamental (whether it is constant or time-varying) and the structure of information available to agents. Risk averse traders receive two potential signals each period: one exogenous and private and the other, prices, endogenous and public. Prices aggregate private information, but include aggregate noise. Information can accumulate over time both through endogenous and exogenous signals. With a constant fundamental, the precision of both private and public cumulative information increases over time but agents put progressively more weight on the endogenous signals, asymptotically disregarding private ones. If the fundamental is time-varying, the use of past private signals complicates the role of prices as a sources of information, since it introduces endogenous serial correlation in the price signal and cross correlation between it and innovations in the fundamental. A modified version of the Kalman filter can still be used to extract information from prices and results show that the precision of the endogenous signals converges to a constant, with both private and public information used at all times.

JEL-codes: D83 D84 G12 G14 (search for similar items in EconPapers)
Date: 2020-07
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://hummedia.manchester.ac.uk/schools/soss/econ ... npapers/EDP-2009.pdf (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:man:sespap:2009

Access Statistics for this paper

More papers in Economics Discussion Paper Series from Economics, The University of Manchester Contact information at EDIRC.
Bibliographic data for series maintained by Marianne Sensier ().

 
Page updated 2023-01-17
Handle: RePEc:man:sespap:2009