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Unexpected News or Financial Flows

In: Money, Credit and Asset Prices

Author

Listed:
  • Gordon Pepper

    (Department of Banking and Finance, City University Business School)

Abstract

According to the efficient-market hypothesis, all known information relevant to share prices is assimilated quickly and is reflected in market prices. It appears to follow that all changes in market prices are the result of unexpected new items of information. This book argues, in contrast, that flows of funds are another important explanation. But this begs a question. Cannot flows of funds be discounted in the same way as other information? The chapter describes how competition between speculators anticipating changes in flows of funds can create gyrations in markets rather than smooth adjustments. It also describes how market movements caused by flows of funds can determine sentiment; instead of causality running from expectations to market movements, it runs in the reverse direction.

Suggested Citation

  • Gordon Pepper, 1994. "Unexpected News or Financial Flows," Palgrave Macmillan Books, in: Money, Credit and Asset Prices, chapter 2, pages 17-28, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-37593-2_3
    DOI: 10.1057/9780230375932_3
    as

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