The Pricing Effects of Ambiguous Private Information
Brigham Young University - Department of Economics
Jayant V. Ganguli
University of Essex - Department of Economics
July 14, 2014
Ambiguous private information leads to informational inefficiency of asset prices in rational expectations equilibrium. This inefficiency implies lower asset price as uninformed traders require a premium to hold assets. This premium is increasing in the riskiness of the asset. The market exhibits excess volatility, price swings, and relatively large volatility variation and illiquidity variation as measured by price sensitivity variation across informational efficiency regimes. Public information affects the informational efficiency of price and can also lead to relatively large changes in volatility and illiquidity.
Number of Pages in PDF File: 45
Keywords: ambiguity, partial revelation, asset pricing
JEL Classification: G1, G12, G14
Date posted: September 30, 2012 ; Last revised: July 15, 2014
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