Search Results
Working Paper
Information quality, performance measurement, and security demand in rational expectations economies
The relationship between asset demand and information quality in rational expectations economies is analyzed. First we derive a number of new summary descriptive statistics that measure four basic characteristics of investment style: asset selection, market timing, aggressiveness, and specialization. Then we relate these statistics to the divergence between a given investor's information structure and the market average information structure. Finally, we demonstrate that informational differentials can be identified, and consistently estimated, using OLS from the time series of observed asset ...
Working Paper
A theory of money and banking
The authors construct a simple environment that combines a limited communication friction and a limited information friction in order to generate a role for money and intermediation. They ask whether there is any reason to expect the emergence of a banking sector (i.e., institutions that combine the business of money creation with the business of intermediation). In their model, the unique equilibrium is characterized partly by the existence of an agent that: (1) creates money (a debt instrument that circulates as a means of payment); (2) lends it out (swapping it for less liquid forms of ...
Working Paper
Information acquisition in financial markets: a correction
This note provides a proper example for the mechanism of strategic complementarities proposed in our paper. ; Original paper in Review of Economic Studies, January 2000, v. 67, no.1, p. 79?90.
Report
Estimating a structural model of herd behavior in financial markets
We develop a new methodology for estimating the importance of herd behavior in financial markets. Specifically, we build a structural model of informational herding that can be estimated with financial transaction data. In the model, rational herding arises because of information-event uncertainty. We estimate the model using 1995 stock market data for Ashland Inc., a company listed on the New York Stock Exchange. Herding occurs often and is particularly pervasive on certain days. In an information-event day, on average, 2 percent (4 percent) of informed traders herd-buy (sell). In 7 percent ...
Report
What moves the bond market?
We take a close look at a year in the U.S. Treasury market and try to explain the sharpest price changes and most active trading episodes. The virtue of our analysis lies in its use of high-frequency data on market movements and accurate release times for a comprehensive set of economic announcements. For the period August 1993 to August 1994, we attribute the 25 largest price moves and 25 greatest trading surges to just-released announcements. The bond market's response to announcements in general is consistent with the way we would expect it to react to new information.
Journal Article
Foreign exchange: macro puzzles, micro tools
This paper reviews recent progress in applying information-theoretic tools to long-standing exchange rate puzzles. I begin by distinguishing the traditional public information approach (e.g. monetary models, including new open economy models) from the newer dispersed information approach. (The latter focuses on how information is aggregated in the trading process.) I then review empirical results from the dispersed information approach and relate them to two key puzzles, the determination puzzle and the excess volatility puzzle. The dispersed information approach has made progress on both.
Working Paper
Imperfect state verification and financial contracting
An argument that in a costly state verification model of financial contracting, relaxing the assumption of perfect verification makes the measurement of information difficult.
Working Paper
Computing moral-hazard problems using the Dantzig-Wolfe decomposition algorithm
Linear programming is an important method for computing solutions to private information problems. The method is applicable for arbitrary specifications of the references and technology. Unfortunately, as the cardinality of underlying sets increases the programs quickly become too large to compute. This paper demonstrates that moral-hazard problems have a structure that allows them to be computed using the Dantzig-Wolfe decomposition algorithm. This algorithm breaks the linear program into subproblems, greatly increasing the size of problems that may be practically computed. Connections to ...