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Veldkamp, Laura L. 2006. "Media Frenzies in Markets for Financial Information."
,
96(3): 577-601.
Show Article Details
DOI: 10.1257/aer.96.3.577
Abstract:Emerging equity markets witness occasional surges in prices (frenzies) and crossmarket
price dispersion (herds), accompanied by abundant media coverage. An
information market complementarity can explain these anomalies. Because information
has high fixed costs, high volume makes it inexpensive. Low prices induce
investors to buy information that others buy. Given two identical assets, investors
learn about one; abundant information reduces its payoff risk and raises its price.
Transitions between low-information/low-asset-price and high-information/highasset-
price equilibria resemble frenzies. Equity data and new panel data on news
coverage support the model's predictions: Asset market movements generate news
and news raises prices and price dispersion. (JEL D82, G12, G14)
Additional links:
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Authors:
Veldkamp, Laura L.
JEL Classifications:
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