Ambiguity, Information Acquisition and Price Swings in Asset Markets
نویسندگان
چکیده
This paper studies asset markets in which ambiguity averse investors face Knightian uncertainty about expected payo s. The same investors, however, might wish to resolve their uncertainty, although not risk, by just purchasing information. In these markets, uninformed and, hence, ambiguity averse, agents may coexist with informed agents, as a result of a rational information acquisition process. Moreover, there are complementaries in information acquisition, multiplicity of equilibria, history-dependent prices, and large price swings occurring after small changes in the uncertainty surrounding the asset expected payo s. Our model suggests the importance of uncertainty, as a new channel for episodes of extreme price volatility, media frenzies and media glooms. We thank Paolo Ghirardato, Emre Ozdenoren and Kathy Yuan for discussions, and seminar participants at USI Lugano (Institute of Finance) and brown bags at our institutions for comments. The usual disclaimer applies.
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Uncertainty, Information Acquisition and Price Swings in Asset Markets
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