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The Pricing Effects of Ambiguous Private Information

72 Pages Posted: 30 Sep 2012 Last revised: 14 Jul 2017

Scott Condie

Brigham Young University - Department of Economics

Jayant V. Ganguli

University of Essex - Department of Economics

Date Written: June 6, 2017

Abstract

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 and higher return volatility relative to informationally efficient benchmarks. Moreover, asset returns are negatively skewed and may be leptokurtic. Inefficiency also leads to amplification in price of small changes in news, relative to informationally efficient benchmarks. Public information affects the nature of unrevealed private information and the informational inefficiency of prices. Asset prices may be lower (higher)
with good (bad) public information.

Keywords: ambiguity, partial revelation, asset pricing

JEL Classification: G1, G12, G14

Suggested Citation

Condie, Scott and Ganguli, Jayant V., The Pricing Effects of Ambiguous Private Information (June 6, 2017). Available at SSRN: https://ssrn.com/abstract=2154383 or http://dx.doi.org/10.2139/ssrn.2154383

Scott Condie (Contact Author)

Brigham Young University - Department of Economics ( email )

130 Faculty Office Bldg.
Provo, UT 84602-2363
United States

Jayant V. Ganguli

University of Essex - Department of Economics ( email )

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom

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