Konferenzbeitrag

The impossibility of informationally efficient markets when forecasts are self-defeating

A policy maker (PM) needs information that only financial market traders know in order to implement his optimal policy, and traders may aggregate this information in asset prices. In such a setting, prices can become uninformative, because the PM reacts to information contained in prices, thereby changing asset values and possibly punishing traders for revealing the information. I derive a necessary and sufficient condition for the possibility of fully revealing and accurate prices in large financial markets. Non-fulfillment of this condition means prices cannot be informationally efficient. The condition is also necessary and sufficient for the existence of fully revealing REE, and explains results from several applications in the literature. The condition implies that assets whose values are invertible in the underlying are superior in terms of information revelation compared to assets whose values are non-invertible.

Language
Englisch

Bibliographic citation
Series: Beiträge zur Jahrestagung des Vereins für Socialpolitik 2015: Ökonomische Entwicklung - Theorie und Politik - Session: Economic Theory ; No. A20-V3

Classification
Wirtschaft
Expectations; Speculations
General Financial Markets: General (includes Measurement and Data)
General Equilibrium and Disequilibrium: Financial Markets

Event
Geistige Schöpfung
(who)
Siemroth, Christoph
Event
Veröffentlichung
(when)
2015

Handle
Last update
10.03.2025, 11:45 AM CET

Data provider

This object is provided by:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.

Object type

  • Konferenzbeitrag

Associated

  • Siemroth, Christoph

Time of origin

  • 2015

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