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dc.contributor.authorVeldkamp, Laura L.-
dc.date.accessioned2008-05-30T18:58:52Z-
dc.date.available2008-05-30T18:58:52Z-
dc.date.issued2004-05-17-
dc.identifier.urihttp://hdl.handle.net/2451/27308-
dc.description.abstractTraditional asset pricing models predict that covariance between prices of different assets should be lower than what we observe in the data. This model generates this high covariance within a rational expectations framework by introducing markets for information about asset payoffs. When information is costly, rational investors will not buy information about all assets; they will learn about a subset. Because information production has high fixed costs, competitive producers charge more for low-demand information than for high-demand information. A price that declines in quantity makes investors want to purchase a common subset of information. If investors price many assets using a common subset of information, then a shock to one signal is passed on as a common shock to many asset prices. These common shocks to asset prices generate `excess covariance.' The cross-sectional and time-series properties of asset price covariance are consistent with this explanation.en
dc.language.isoen_USen
dc.relation.ispartofseriesS-MF-04-12en
dc.subjectComovementen
dc.subjectherdingen
dc.subjectinformation marketen
dc.subjectasset pricingen
dc.titleInformation Markets and the Comovement of Asset Pricesen
dc.typeWorking Paperen
Appears in Collections:Macro Finance

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