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http://hdl.handle.net/2451/27324
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| Title: | Media Frenzies in Markets for Financial Information |
| Authors: | Veldkamp, Laura L. |
| Issue Date: | 20-Sep-2003 |
| Series/Report no.: | S-MF-03-16 |
| Abstract: | Emerging equity markets witness occasional surges in the price level
(frenzies) and increases in cross-market price dispersion (herds),
accompanied by a flood 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 same information because it has the lowest
price. By lowering risk, information raises the asset's price. Given
two identical assets, investors herd: one price is higher because
abundant information about that asset reduces its payoff risk.
Transitions between low-information/low-asset-price and
high-information/high-asset-price equilibria 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 and higher cross-market
price dispersion. |
| URI: | http://hdl.handle.net/2451/27324 |
| Appears in Collections: | Macro Finance
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