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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26173
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| Title: | Media Frenzies in Markets for Financial Information |
| Authors: | Veldkamp, Laura |
| Keywords: | Crashes
herding
information market
media |
| Issue Date: | 27-Aug-2003 |
| Series/Report no.: | EC-03-20 |
| Abstract: | Promising emerging equity markets often witness investment herds and
frenzies, accompanied by an abundance of media coverage. Complementarity
in information acquisition can explain these anomalies. Because
information has a high fixed cost of production, its equilibrium price
is low when quantity is high. Investors all buy the most popular
information because it has the lowest price. Given two identical asset
markets, investors herd: asset demand is higher in the market with
abundant information because information reduces risk. By lowering risk,
information raises the asset's price. Transitions between
low-information/low-asset-price and high-information/high-asset-price
equilibria raise price volatility and create price paths resembling
periodic frenzies. Using equity data and a new panel data set of news
counts for 23 emerging markets, the results show that when asset market
volatility increases, news coverage intensifies, and that more news is
correlated with higher asset prices. |
| URI: | http://hdl.handle.net/2451/26173 |
| Appears in Collections: | Economics Working Papers
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