Journal ArticleDOI
Learning about noise
TLDR
In this article, the authors develop a rational expectations model with investors who are endowed with fundamental and non-fundamental information of heterogeneous quality and who optimally allocate learning capacity between fundamentals and noise.Abstract:
This paper studies how acquisition of non-fundamental information (learning about noise) affects financial markets. We develop a rational expectations model with investors who are endowed with fundamental and non-fundamental information of heterogeneous quality and who optimally allocate learning capacity between fundamentals and noise. We demonstrate that learning about noise increases price informativeness, and the price can be the most informative when the majority of investors acquire non-fundamental information. We also find that i) investors whose prior fundamental information is relatively precise (imprecise) compared to their prior non-fundamental information learn only about fundamentals (noise) and ii) learning about fundamentals (noise) increases (decreases) the heterogeneity in the fundamental information quality across investors.read more
Citations
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Journal ArticleDOI
Costly Interpretation of Asset Prices
TL;DR: In this article , Manso et al. proposed a model in which investors cannot costlessly process information from asset prices, and their interpretation of prices injects noise into the price, generating a source of endogenous noise trading.
Journal ArticleDOI
Institutional investors vs retail investors: Are psychological biases equally applicable to investor divides in Malaysia?
TL;DR: In this paper, the authors investigated the investment behaviors of Malaysian retail and institutional investors in an attempt to identify whether the influence of psychological biases is equally applicable to investor divides, and found that institutional and retail investors are similar with respect to representative heuristic, overconfidence bias and anchoring bias.
Journal ArticleDOI
Information Sharing in Financial Markets
TL;DR: The authors studied information sharing between strategic investors who are privately informed about asset fundamental with different precision levels and found that a coarsely informed investor would always share her information "as is" if her counterparty investor is well informed about the fundamental.
Journal ArticleDOI
Estimating the proportion of informed and speculative traders in financial markets: evidence from exchange rate
Ping-Chen Tsai,Chi-Ming Tsai +1 more
TL;DR: In this article, the Glosten-Milgrom model is generalized in terms of a key parameter, the probability of making a correct decision by an agent, and the proportion of informed traders or speculators using bid-ask spread and price range.
Journal ArticleDOI
Trading Under Uncertainty About Other Market Participants
TL;DR: The authors presented an asymmetric information model of financial markets that features rational, but uninformed, hedge fund managers who trade against informed and noise traders, with higher expected returns at times of increased uncertainty about market composition.
References
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Book
Elements of information theory
Thomas M. Cover,Joy A. Thomas +1 more
TL;DR: The author examines the role of entropy, inequality, and randomness in the design of codes and the construction of codes in the rapidly changing environment.
Journal ArticleDOI
On the impossibility of informationally efficient markets
Journal ArticleDOI
Implications of rational inattention
TL;DR: In this paper, a constraint that actions can depend on observations only through a communication channel with finite Shannon capacity is shown to play a role very similar to that of a signal extraction problem or an adjustment cost in standard control problems.
Journal ArticleDOI
Giving Content to Investor Sentiment: The Role of Media in the Stock Market
TL;DR: The authors quantitatively measure the interactions between the media and the stock market using daily content from a popular Wall Street Journal column and find that high media pessimism predicts downward pressure on market prices followed by a reversion to fundamentals.
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