Conformism, Public News and Market Efficiency
نویسندگان
چکیده
We study the implications of conformism among analysts in a CARA Gaussian model of the market for a risky asset, where a trader’s information is a message sent by an analyst. Conformism increases the weight of the public information in the messages, decreasing their informativeness. More precise public information does not always result in more precise messages. A larger precision of the analysts information does not always make the market more liquid and the price more informative. Conformism creates an overreaction of the price to public information. Using the price as a public signal does not alter the results.
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