Much ado about making money: the impact of disclosure, news and rumors on the formation of security market prices over time
Biondi, Yuri; Righi, Simone (2020), Much ado about making money: the impact of disclosure, news and rumors on the formation of security market prices over time, Journal of Economic Interaction and Coordination, 15, p. 333-362. 10.1007/s11403-017-0201-8
Type
Article accepté pour publication ou publiéDate
2020Journal name
Journal of Economic Interaction and CoordinationVolume
15Publisher
Springer
Pages
333-362
Publication identifier
Metadata
Show full item recordAuthor(s)
Biondi, Yuri
Institut de Recherche Interdisciplinaire en Sciences Sociales [IRISSO]
Righi, Simone
Instituto di Geoscienze e Georisorce [Pisa] [IGG]
Abstract (EN)
This article develops an agent-based model of security market pricing process, capable to capture main stylised facts. It features collective market pricing mechanisms based upon evolving heterogenous expectations that incorporate signals of security issuer fundamental performance over time. Distinctive signaling sources on this performance correspond to institutional mechanisms of information diffusion. These sources differ by duration effect (temporary, persistent, and permanent), confidence, and diffusion degree among investors over space and time. Under full and immediate diffusion and balanced reaction by all the investors, the value content of these sources is expected to be consistently and timely integrated by the market price process, implying efficient pricing. By relaxing these quite heroic conditions, we assess the impact of distinctive information sources over market price dynamics, through financial systemic properties such as market price volatility, exuberance and errancy, as well as market liquidity. Our simulation analysis shows that transient information shocks can have permanent effects through mismatching reactions and self-reinforcing feedbacks, involving mispricing in both value and timing relative to the efficient market price series. This mispricing depends on both the information diffusion process and the ongoing information confidence mood among investors over space and time. We illustrate our results through paradigmatic cases of stochastic news, before generalising them to autocorrelated news. Our results are further corroborated by robustness checks over the parameter space and across several market trading mechanisms.Subjects / Keywords
Market efficiency; Disclosure; Information diffusion; Agent-based modellingJEL
M48 - Government Policy and RegulationM41 - Accounting
E37 - Forecasting and Simulation: Models and Applications
E17 - Forecasting and Simulation: Models and Applications
D82 - Asymmetric and Private Information; Mechanism Design
D47 - Market Design
C63 - Computational Techniques; Simulation Modeling
G17 - Financial Forecasting and Simulation
G14 - Information and Market Efficiency; Event Studies; Insider Trading
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