The Pricing Effects of Ambiguous Private Information
Brigham Young University - Department of Economics
Jayant V. Ganguli
University of Essex - Department of Economics
December 18, 2015
When private information is observed by ambiguity averse investors, asset prices may be informationally inefficient in rational expectations equilibrium. This inefficiency implies lower asset prices as uninformed investors require a premium to hold assets. Asset returns are negatively skewed and may be leptokurtic. Inefficiency also leads to amplification in price of small changes in news, relative to benchmarks where there is no informational inefficiency. Public information affects the nature of unrevealed private information and the informational inefficiency of prices. Asset prices can fall (rise) when good (bad) public information is observed.
Number of Pages in PDF File: 61
Keywords: ambiguity, partial revelation, asset pricing
JEL Classification: G1, G12, G14
Date posted: September 30, 2012 ; Last revised: December 19, 2015
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