Bayesian Pricing of News

56 Pages Posted: 20 Aug 2018 Last revised: 30 Dec 2020

See all articles by Dmitry Livdan

Dmitry Livdan

University of California, Berkeley

Alexander Nezlobin

London School of Economics & Political Science (LSE) - London School of Economics

Date Written: December 29, 2020

Abstract

This paper characterizes the equilibrium stock price reaction to arbitrarily distributed signals when the prior distribution of the payoff is normal and the utility is exponential. This stock price reaction is shown to be proportional to the Fisher score of the news calculated under a risk-neutral probability measure. As an application of our analysis, we (i) characterize the stock price reaction to news whose arrival is content-dependent, (ii) develop a model of "agenda-setting" disclosures, and (iii) construct an equilibrium in a voluntary disclosure model with multidimensional information and risk averse investors.

Keywords: Voluntary Disclosure, Cost of Capital, Pricing of News, Fisher Score

JEL Classification: D21, D82, D83, M41

Suggested Citation

Livdan, Dmitry and Nezlobin, Alexander, Bayesian Pricing of News (December 29, 2020). 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)

London School of Economics & Political Science (LSE) - London School of Economics ( email )

United Kingdom

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
83
Abstract Views
1,132
rank
340,317
PlumX Metrics