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Conformism, Public News and Market Effciency

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  • Gabriel Desgranges
  • Celine Rochon

Abstract

We study the implications of conformism among analysts in a CARA Gaussian model of the market for a risky asset, where a trader's in- formation is a message sent by an analyst. Conformism increases the weight of the public information in the messages, decreasing their in- formativeness. More precise public information does not always result in more precise messages. A larger precision of the analysts informa- tion does not always make the market more liquid and the price more informative. Conformism creates an overreaction of the price to pub- lic information. Using the price as a public signal does not alter the results.

Suggested Citation

  • Gabriel Desgranges & Celine Rochon, 2008. "Conformism, Public News and Market Effciency," OFRC Working Papers Series 2008fe16, Oxford Financial Research Centre.
    • Handle: RePEc:sbs:wpsefe:2008fe16
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    Cited by:

    1. Jeanne Hagenbach & Frédéric Koessler, 2010. "Strategic Communication Networks," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 77(3), pages 1072-1099.

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    More about this item

    Keywords

    public information; asymmetric information; conformism; revelation of information by prices; rational expectations;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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