Dynamic Information Regimes in Financial Markets

58 Pages Posted: 9 Feb 2019 Last revised: 27 Mar 2020

See all articles by Paul Glasserman

Paul Glasserman

Columbia Business School

Harry Mamaysky

Columbia University - Columbia Business School

Yiwen Shen

Columbia Business School - Decision Risk and Operations

Date Written: March 26, 2020

Abstract

We develop a model of investor information choices and asset prices in which the availability of information about fundamentals is time-varying. A competitive research sector produces more information when there are more investors willing to pay for that research. This feedback, from the number of investors willing to pay for information to more information production, generates two regimes in equilibrium, one having high prices and low volatility, the other the opposite. Information dynamics move the market between regimes, creating large price drops with no change in fundamentals. When calibrated to market data, the model suggests an important role for information dynamics in financial crises.

Keywords: asset pricing, information choice

JEL Classification: E32, G12, G14

Suggested Citation

Glasserman, Paul and Mamaysky, Harry and Shen, Yiwen, Dynamic Information Regimes in Financial Markets (March 26, 2020). Available at SSRN: https://ssrn.com/abstract=3324789 or http://dx.doi.org/10.2139/ssrn.3324789

Paul Glasserman

Columbia Business School ( email )

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Harry Mamaysky (Contact Author)

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Yiwen Shen

Columbia Business School - Decision Risk and Operations ( email )

New York, NY
United States

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