Information Transmission in Finance

Posted: 25 Nov 2014

See all articles by Paul C. Tetlock

Paul C. Tetlock

Columbia Business School - Finance

Date Written: December 2014

Abstract

Because theories in finance rely critically on what agents know, designing powerful tests of these theories requires measuring information transmission. In this review, I characterize the rapidly growing subfield directly analyzing information in financial markets. Its three hallmarks are the examination of (a) a wide array of informative events, (b) different mechanisms for transmitting information, and (c) measures of information content based on nonnumeric information. Recent research directly measures flows of information to shed light on diverse phenomena in asset pricing, such as market reactions to news and nonnews, investors’ portfolio choices, and mutual fund flows and returns, and in corporate finance, such as mergers and acquisitions, initial public offering (IPO) underpricing, and executive compensation. Continued improvements in access to data and computing power are likely to propel this line of research for years to come.

Suggested Citation

Tetlock, Paul C., Information Transmission in Finance (December 2014). Annual Review of Financial Economics, Vol. 6, pp. 365-384, 2014, Available at SSRN: https://ssrn.com/abstract=2530471 or http://dx.doi.org/10.1146/annurev-financial-110613-034449

Paul C. Tetlock (Contact Author)

Columbia Business School - Finance ( email )

3022 Broadway
New York, NY 10027
United States

HOME PAGE: http://www0.gsb.columbia.edu/faculty/ptetlock/

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