Rumors
A Kyle (1985) model with private information diffusion is used to examine the motivation to spread stock tips. An informed investor with limited investment capacity spreads imprecise rumors to an audience of followers. Followers trade on the advice and move the price. Due to the imprecision of the r...
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| Veröffentlicht in: | The Journal of finance (New York) 2003-08, Vol.58 (4), p.1499-1520 |
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| container_title | The Journal of finance (New York) |
| container_volume | 58 |
| creator | Van Bommel, Jos |
| description | A Kyle (1985) model with private information diffusion is used to examine the motivation to spread stock tips. An informed investor with limited investment capacity spreads imprecise rumors to an audience of followers. Followers trade on the advice and move the price. Due to the imprecision of the rumor, the price overshoots with positive probability. This gives the rumormonger the opportunity to trade twice: First when she receives information, then when she knows the price to be overshooting. In equilibrium, rumors are informative and both rumormongers and followers increase their profits at the expense of uninformed liquidity traders. |
| doi_str_mv | 10.1111/1540-6261.00575 |
| format | Article |
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An informed investor with limited investment capacity spreads imprecise rumors to an audience of followers. Followers trade on the advice and move the price. Due to the imprecision of the rumor, the price overshoots with positive probability. This gives the rumormonger the opportunity to trade twice: First when she receives information, then when she knows the price to be overshooting. In equilibrium, rumors are informative and both rumormongers and followers increase their profits at the expense of uninformed liquidity traders.</description><identifier>ISSN: 0022-1082</identifier><identifier>EISSN: 1540-6261</identifier><identifier>DOI: 10.1111/1540-6261.00575</identifier><identifier>CODEN: JLFIAN</identifier><language>eng</language><publisher>Oxford, UK: Blackwell Publishing</publisher><subject>Auctions ; Cheating ; Gossip ; Information dissemination ; Internet ; Investors ; Market prices ; Mathematical models ; Opportunistic behavior ; Rationing ; Rumors ; Securities markets ; Securities trading ; Stock prices ; Studies ; Trade</subject><ispartof>The Journal of finance (New York), 2003-08, Vol.58 (4), p.1499-1520</ispartof><rights>Copyright 2003 The American Finance Association</rights><rights>2003 the American Finance Association</rights><rights>Copyright Blackwell Publishers Inc. 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| identifier | ISSN: 0022-1082 |
| ispartof | The Journal of finance (New York), 2003-08, Vol.58 (4), p.1499-1520 |
| issn | 0022-1082 1540-6261 |
| language | eng |
| recordid | cdi_proquest_journals_194720878 |
| source | Jstor Complete Legacy; Wiley Online Library Journals Frontfile Complete |
| subjects | Auctions Cheating Gossip Information dissemination Internet Investors Market prices Mathematical models Opportunistic behavior Rationing Rumors Securities markets Securities trading Stock prices Studies Trade |
| title | Rumors |
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