This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.

  1. Home
  2. Journals
  3. American Economic Review
  4. June 2006
  5. Media Frenzies in Markets for Financial Information

Media Frenzies in Markets for Financial Information

Download Full Text PDF

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)

Citation

Veldkamp, Laura, L. 2006. "Media Frenzies in Markets for Financial Information." American Economic Review, 96 (3): 577-601. DOI: 10.1257/aer.96.3.577

Additional Materials

JEL Classification

  • G12 Asset Pricing; Trading Volume; Bond Interest Rates
  • G14 Information and Market Efficiency; Event Studies; Insider Trading
  • O16 Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
  • P34 Socialist Institutions and Their Transitions: Financial Economics