Hostname: page-component-78c5997874-lj6df Total loading time: 0 Render date: 2024-11-03T05:37:57.405Z Has data issue: false hasContentIssue false
  • English
  • Français

On Information Dissemination and Equilibrium Asset Prices: A Note

Published online by Cambridge University Press:  06 April 2009

Robert H. Jennings  and
Christopher B. Barry
Get access Rights & Permissions [Opens in a new window]

Abstract

Previous analyses of market structures characterized by gradual information dissemination presume the equilibrium price existing after all market participants are informed is independent of the order of information dissemination. In these papers, final market clearing price, given the investors' posterior beliefs, is known a priori and is assumed to equal the price that would exist if data were disseminated simultaneously. We demonstrate that final equilibrium price is dependent, in general, on the order of information dissemination. This implies that, if the dissemination sequence is stochastic, price is unknown prior to the complete dissemination of information, even if the investors' posterior beliefs given the information event are known. We derive a necessary and sufficient condition for equilibrium price to be independent of the dissemination sequence in our economy. Our analysis highlights the importance of the wealth redistribution dynamics inherent in the information dissemination process.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 19 , Issue 4 , December 1984 , pp. 395 - 402
Copyright
Copyright © School of Business Administration, University of Washington 1984

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

[1]Brennan, Michael, and Kraus, Alan. “Necessary Conditions for Aggregation in Security Markets.” Journal of Financial and Quantitative Analysis, Vol. 13 (09 1978), pp. 407–417.CrossRefGoogle Scholar
[2]Copeland, Thomas. “A Model of Asset Trading under the Assumption of Sequential Information Arrival.” The Journal of Finance, Vol. 30 (09 1976), pp. 1149–1168.CrossRefGoogle Scholar
[3]Diamond, Douglas, and Verrecchia, Robert. “Information Aggregation in a Noisy Rational Expectations Economy.” Journal of Financial Economics, Vol. 9 (09 1981), pp. 218–232.CrossRefGoogle Scholar
[4]Figlewski, Stephen. “Market Efficiency in a Market with Heterogeneous Information.” Journal of Political Economy, Vol. 86 (08 1978), pp. 581–597.CrossRefGoogle Scholar
[5]Goldman, M. Barry, and Sosin, Howard. “Information Dissemination, Market Efficiency and the Frequency of Transactions.” Journal of Financial Economics, Vol. 7 (03 1979), pp. 29–62.CrossRefGoogle Scholar
[6]Grossman, Sanford, and Stiglitz, Joseph. “On the Impossibility of Informationally Efficient Markets.” American Economic Review, Vol. 70 (06 1980), pp. 393–408.Google Scholar
[7]Grossman, Sanford, and Stiglitz, Joseph. “Information and Competitive Price Systems.” American Economic Review, Vol. 66 (05 1976), pp. 246–253.Google Scholar
[8]Hellwig, Martin. “On the Aggregation of Information in Competitive Markets.” Journal of Economic Theory, Vol. 22 (06 1980), pp. 477–498.CrossRefGoogle Scholar
[9]Hillmer, Steven, and Yú, P. L.. “The Market Speed of Adjustment to New Information.” Journal of Financial Economics, Vol. 7 (12 1979), pp. 321–354.CrossRefGoogle Scholar
[10]Jennings, Robert; Starks, Laura; and Fellingham, John. “An Equilibrium Model of Asset Trading with Sequential Information Arrival.” The Journal of Finance, Vol. 36 (03 1981), pp. 143–162.CrossRefGoogle Scholar
[11]Jennings, Robert, and Barry, Christopher. “Information Dissemination and Portfolio Choice.” Journal of Financial and Quantitative Analysis, Vol. 18 (03 1983), pp. 1–20.CrossRefGoogle Scholar
[12]Lintner, John. “The Aggregation of Investors' Diverse Judgments and Preferences in Purely Competitive Security Markets.” Journal of Financial and Quantitative Analysis, Vol. 4 (09 1969), pp. 374–400.CrossRefGoogle Scholar
[13]Mossin, J.Theory of Financial Markets. Englewood Cliffs, New Jersey: Prentice-Hall, Inc. (1972).Google Scholar
[14]Patcll, James, and Wolfson, Mark. “The Intraday Speed of Adjustment of Stock Prices to Earnings and Dividend Announcements.” Journal of Financial Economics, Vol. 13 (06 1984), pp. 223–252.CrossRefGoogle Scholar
[15]Pratt, John. “Risk Aversion in the Small and the Large.” Econometrica, Vol. 32 (01 1964), pp. 122–136.CrossRefGoogle Scholar
[16]Verrecchia, Robert. “The Rapidity of Price Adjustment to Information.” Journal of Accounting and Economics, Vol. 2 (06 1980), pp. 63–90.CrossRefGoogle Scholar
[17]Verrecchia, Robert. “On the Relationship between Volume Reaction and Consensus of Investors: Implications for Interpreting Tests of Information Content.” Journal of Accounting Research, Vol. 19 (Spring 1981), pp. 271–283.CrossRefGoogle Scholar