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Limited Degree of Publicity and Over-Reaction during Speculative Episodes
[Publicité limitée de l'information et surréaction aux annonces lors des épisodes spéculatifs]

Author

Listed:
  • Camille Cornand

    (BETA - Bureau d'Économie Théorique et Appliquée - INRA - Institut National de la Recherche Agronomique - UNISTRA - Université de Strasbourg - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique, LSE - London School of Economics and Political Science, GATE - Groupe d'analyse et de théorie économique - UL2 - Université Lumière - Lyon 2 - ENS LSH - Ecole Normale Supérieure Lettres et Sciences Humaines - CNRS - Centre National de la Recherche Scientifique)

  • Frank Heinemann

    (LMU - Ludwig Maximilian University [Munich] = Ludwig Maximilians Universität München)

Abstract

The model of Morris and Shin [2002] shows that imprecise public announcements can coordinate the actions of speculators far from the fundamental because of over-reaction to announcements. The strong focal potential of common knowledge is welfare damaging when it induces over-reaction to an imprecise public signal. However, laboratory experiments show that agents over-react to announcements, but not as much as what is theoretically predicted in models based on public information that generates common knowledge. This paper introduces the notion of limited degree of publicity, which seems to render better account for the actual degree of agents' over-reaction.

Suggested Citation

  • Camille Cornand & Frank Heinemann, 2006. "Limited Degree of Publicity and Over-Reaction during Speculative Episodes [Publicité limitée de l'information et surréaction aux annonces lors des épisodes spéculatifs]," Post-Print hal-00279362, HAL.
    • Handle: RePEc:hal:journl:hal-00279362
    DOI: 10.3917/reco.573.0399
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