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On Information Dissemination and Equilibrium Asset Prices: A Note

Published online by Cambridge University Press:  06 April 2009

Robert H. Jennings  and
Christopher B. Barry
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Abstract

Previous analyses of market structures characterized by gradual information dissemination presume the equilibrium price existing after all market participants are informed is independent of the order of information dissemination. In these papers, final market clearing price, given the investors' posterior beliefs, is known a priori and is assumed to equal the price that would exist if data were disseminated simultaneously. We demonstrate that final equilibrium price is dependent, in general, on the order of information dissemination. This implies that, if the dissemination sequence is stochastic, price is unknown prior to the complete dissemination of information, even if the investors' posterior beliefs given the information event are known. We derive a necessary and sufficient condition for equilibrium price to be independent of the dissemination sequence in our economy. Our analysis highlights the importance of the wealth redistribution dynamics inherent in the information dissemination process.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 19 , Issue 4 , December 1984 , pp. 395 - 402
Copyright
Copyright © School of Business Administration, University of Washington 1984

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