Bayesian Pricing of News

42 Pages Posted: 20 Aug 2018

See all articles by Dmitry Livdan

Dmitry Livdan

University of California, Berkeley

Alexander Nezlobin

University of California, Berkeley - Haas School of Business

Date Written: August 6, 2018

Abstract

This paper characterizes the equilibrium stock price reaction to arbitrarily distributed signals. This stock price reaction is shown to be proportional to the Fisher score of the news calculated under the risk-neutral probability measure. The expression for the Fisher score takes a particularly compact form for news whose distribution is obtained by conditioning a latent multivariate normal signal, a situation which often arises in partial-pooling equilibria. As an application of our analysis, we (i) characterize the stock price reaction to news whose arrival is content-dependent, and (ii) construct an equilibrium in a voluntary disclosure model with multidimensional information and risk averse investors.

Keywords: Persuasion Games, Voluntary Disclosure, Cost of Capital, News Pricing

JEL Classification: D21, D82, D83, M41

Suggested Citation

Livdan, Dmitry and Nezlobin, Alexander, Bayesian Pricing of News (August 6, 2018). Available at SSRN: https://ssrn.com/abstract=3225448 or http://dx.doi.org/10.2139/ssrn.3225448

Dmitry Livdan

University of California, Berkeley ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States
(510) 642-4733 (Phone)

Alexander Nezlobin (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

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