Dynamic Information Regimes in Financial Markets

45 Pages Posted: 9 Feb 2019 Last revised: 5 May 2022

See all articles by Paul Glasserman

Paul Glasserman

Columbia University - Columbia Business School

Harry Mamaysky

Columbia University - Columbia Business School

Yiwen Shen

Hong Kong University of Science & Technology (HKUST) - Department of Information Systems, Business Statistics and Operations Management

Date Written: May 4, 2022

Abstract

We develop a model of investor information choices and asset prices in which the availability of information about fundamentals is time-varying and responds to investor demand for information. A competitive research sector produces more information when more investors are willing to pay for that research. This feedback, from investor willingness to pay for information to more information production, generates two regimes in equilibrium, one having high prices and low volatility, the other the opposite. The low-price, high-volatility regime is associated with greater information asymmetry between informed and uninformed investors. Information dynamics move the market between regimes, creating large price drops even with no change in fundamentals. In our calibration, 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 (May 4, 2022). Available at SSRN: https://ssrn.com/abstract=3324789 or http://dx.doi.org/10.2139/ssrn.3324789

Paul Glasserman

Columbia University - Columbia Business School ( email )

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212-854-4102 (Phone)
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Harry Mamaysky (Contact Author)

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Yiwen Shen

Hong Kong University of Science & Technology (HKUST) - Department of Information Systems, Business Statistics and Operations Management ( email )

Clear Water Bay
Kowloon
Hong Kong

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