Asymmetric Information and the Excess Volatility of Stock Prices

Authors

  • Benjamin Eden University of Iowa, the Technion-Israel Institute of Technology, and the Bank of Israel
  • Boyan Jovanovic New York University

DOI:

https://doi.org/10.1016/1057-0810(95)90043-8

Abstract

Evidence suggests the volatility of stock prices cannot be accounted for by information about future dividends. We argue that some of the volatility of stock prices in excess of fundamentals results from fluctuations in the amount of public information over time. Our model assumes that dividends and consumption are constant in the aggregate but that there are good lirms and bad firms whose identity may be unknown to the public, as in Akerlof’s “lemons” problem. In that case, the collective valuation of the constant dividend stream depends on the degree of informational asymmetry. Economic Inquiry, April 1994, XxX11: 228-235. (Reprinted with permission of the Economic Inquiry.)

Published

1995-06-30

How to Cite

Eden , B., & Jovanovic , B. (1995). Asymmetric Information and the Excess Volatility of Stock Prices. Financial Services Review: The Journal of Individual Financial Management, 4(1), 69. https://doi.org/10.1016/1057-0810(95)90043-8

Issue

Vol. 4 No. 1 (1995): Financial Services Review

Section

Abstracts of Articles on Individual Financial Management

License

Copyright (c) 1995 JAI Press Inc.

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.

Author(s) retain copyright and grant the Journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution-NonCommercial 4.0 International License that allows to share the work with an acknowledgment of the work's authorship and initial publication in this Journal.

This license allows the author to remix, tweak, and build upon the original work non-commercially. The new work(s) must be non-commercial and acknowledge the original work.