measuring food security in africa conceptual empirical and policy issues the definition of food security has broadened since the term first came to prominence at the 1975 world food conference discussions of food security in the midand late 1970s were strongly influenced by the shortfall in world food production and run up in prices early in that decade initially food security meant avoiding transitory shortfalls in the aggregate supply of food by the early 1980s however the world food supply situation had evolved markedly the famines striking africa took place in a world awash in grain clearly inadequate levels of global food supply were not the cause of hunger sen s work focused attention on the lack of access by households and individuals to food because of low incomes entitlements as a cause of food insecurity and other research has shown that for most of the hungry in the world this lack of access is chronic not transitory thus the conceptual understanding of food insecurity has gradually evolved over the past fifteen years to include not only transitory problems of inadequate supply at the national level but also chronic problems of inadequate access and unequal distribution at the household level d spite a broader understanding of the complexity of food insecurity policy makers must still look for easily measured indicators to design programs to reach the food insecure often these indicators are measures of regional or national food supply or its correlates such as rainfall as current information on household or individual entitlements to food is usually lacking s me policy makers may think of supply shortfalls or the lack of domestic food self suffi

when transparency improves must prices reflect fundamentals better no in the presence of speculative opportunities investors can learn about both asset fundamentals and the beliefs of other traders we show that this learning exhibits complementarity learning more along one dimension increases the value of learning about the other as a result regulatory changes may be counterproductive first increasing transparency i e making fundamental information cheaper to acquire can make prices less informative when investors respond by learning relatively more about others second public disclosures discourage private learning about fundamentals while encouraging information acquisition about others accordingly disclosing more fundamental information can decrease overall informational efficiency by decreasing price informativeness received april 20 2016 editorial decision september 30 2017 by editor itay goldstein

does ambiguity aversion survive in experimental asset markets although a number of theoretical studies explain empirical puzzles in finance with ambiguity aversion it is not a given that individual ambiguity attitudes survive in markets in fact despite ample evidence of ambiguity aversion in individual decision making most studies find no or only limited ambiguity aversion in experimental financial markets even when they exclude arbitrage we argue that ambiguity effects in markets depend on market feedback and on a sufficiently strong bias toward ambiguity among the participants accordingly we find significant ambiguity effects in low feedback call markets for assets that provoke high ambiguity aversion but no ambiguity effects in high feedback double auctions

the information content of annual earnings releases a trading volume approach this paper reports the results of an empirical examination of the relations between the volume of securities traded the magnitude of surprises in annual earnings announcements and firm size although early trading volume studies e g beaver 1968 kiger 1972 and foster 1973 replicated basic information content studies with findings similar to those based on security prices we should not expect that security price and trading volume research will continue to yield identical results when more refined hypotheses are tested trading volume reflects investors activity by summing all market trades whereas security prices reflect an aggregation or averaging of investors beliefs as a result we will on occasion observe differences between price and volume reactions to earnings announcements as did morse 1981 this study extends the recent trend toward tests of more refined hypotheses by using a larger sample to examine the associations between unexpected earnings firm size and trading volume and testing whether such associations can be generalized across fiscal year end dates and stock exchange listing my results show a continuous positive relationship between trading

investor flows and the 2008 boom bust in oil prices this paper explores the impact of investor flows and financial market conditions on returns in crude oil futures markets i argue that informational frictions and the associated speculative activity may induce prices to drift away from fundamental values and may result in price booms and busts particular attention is given to the interplay between imperfect information about real economic activity including supply demand and inventory accumulation and speculative activity in oil markets furthermore i present new evidence that there were economically and statistically significant effects of investor flows on futures prices after controlling for returns in the united states and emerging economy stock markets a measure of the balance sheet flexibility of large financial institutions open interest the futures spot basis and lagged returns on oil futures the largest impacts on futures prices were from intermediate term growth rates of index positions and managed money spread positions moreover my findings suggest that these effects were through risk or informational channels distinct from changes in convenience yield finally the evidence suggests that hedge fund trading in spread positions in futures impacted the shape of term structure of oil futures prices this paper was accepted by wei xiong finance

disagreement and asset prices abstract how do differences of opinion affect asset prices do investors earn a risk premium when disagreement arises in the market despite their fundamental importance these questions are among the most controversial issues in finance in this paper we use a novel data set that allows us to directly measure the level of disagreement among wall street mortgage dealers about prepayment speeds we examine how disagreement evolves over time and study its effects on expected returns return volatility and trading volume in the mortgage backed security market we find that increased disagreement is associated with higher expected returns higher return volatility and larger trading volume these results imply that there is a positive risk premium for disagreement in asset prices we also show that volatility in and of itself does not lead to higher trading volume instead only when disagreement arises in the market is higher uncertainty associated with more trading finally we are able to distinguish empirically between two competing hypotheses regarding how information in markets gets incorporated into asset prices we find that sophisticated investors appear to update their beliefs through a rational expectations mechanism when disagreement arises

a theory of trading volume a theory of trading volume is developed based on assumptions that market agents frequently revise their demand prices and randomly encounter potential trading partners the model describes two distinct ways informational events affect trading volume one is consistent with conjectures made by empirical researchers that investor disagreement leads to increased trading but the observation of abnormal trading volume does not necessarily imply disagreement and volume can increase even if investors interpret the information identically if they also have had divergent prior expectations simulation tests support the model and are used to contrast the random pairing environment with costless market clearing volume is lower in the costly market and volume increases caused by an informational event persist after the event period this is consistent with existing empirical evidence and suggests that markets do not immediately clear all orders or that investors have demands to recontract

smooth trading with overconfidence and market power we describe a symmetric continuous time model of trading among relatively overconfident oligopolistic informed traders with exponential utility traders agree to disagree about the precisions of their continuous flows of gaussian private information with enough disagreement an equilibrium exists in which prices reveal the average of all traders signals immediately but traders continue to trade gradually towards target inventories the price is a linear function of a trader s inventory the derivative of a trader s inventory and the average other traders valuations prices reflect a keynesian beauty contest faster than equilibrium trading generates flash crashes jel d8 d43 d47 g02 g14

measuring the demand for improved urban sanitation services results of a contingent valuation study in ouagadougou burkina faso in developing countries there are few institutional mechanisms for the incorporation of demand information in the planning of public services as a result misjudgements about consumer preferences have often led to poor project design and performance the contingent valuation method which relies on direct elicitation of consumer preferences and willingness to pay has emerged as one approach to address this shortcoming the paper describes an application of the method to facilitate demand driven planning for provision of improved sanitation in ouagadougou burkina faso the results suggest that demand information about unfamiliar technologies can be successfully obtained and can serve as a useful input in the design of public services

examining the differences in self and publicly supplied firms water demands this research examines the fac tors influencing the decision made by manufac turing firms regarding their source of water sup ply and tests whether self supplied firms exhibit demands for intake water different from firms supplied by a public utility the first stage of the estimation model involves a probit analysis of the supply source choice and the second stage employs a regression model with endogenous switching to estimate the demand equations for the two types offirms results indicate that eco nomic factors such as annual connection fees influence the supply source decision jel q25

estimation of substitution possibilities between water and other production inputs the traditional approach to measuring the demand for water by industries relies upon fixed water use coefficients water supply planners base decisions about system expansion partly upon fixed coefficients applied to projected levels of industrial growth among the restrictive assumptions implied by this approach is that producers are generally unresponsive to the relative price of water compared with other factors earlier studies focused on industry by industry assessments of present and potential water use technologies and the possibilities for substituting other productive inputs for water most of these studies are economic engineering in form thompson and young and russell are analyses of the steam electric generating industry and the petroleum refining and petrochemical industry respectively because they used linear programming techniques their results must be interpreted cautiously the flexible functional forms which have become

food security strategies under extremely adverse conditions the determinants of household income and consumption in rural mozambique abstract this paper uses household survey data from war torn northern mozambique to examine the factors associated with higher incomes and improved rural household food security incomes and calorie consumption were found to be low and variable in each district and both are highly correlated with land holdings the central role of land holdings is largely a result of serious market failure food market participation rates and the proportion of net buyers are lower than in other sub saharan africa ssa research purchased food as a percentage of total caloric intake and off farm income as a percentage of total income are both very low by ssa standards in short surveyed smallholders have adopted a strategy of marked reliance on farm based own production to ensure their survival it is suggested that land holdings will continue to be key determinants of household income and consumption for the foreseeable future broad based rural development efforts possibly organized around existing cotton growing enterprises may offer one way out of the poverty trap for smallholders

disagreement and learning dynamic patterns of trade we study volume dynamics when there are disagreements among investors for that purpose we develop a dynamic model in which differences in the interpretation of public information lead to trade we obtain a simple linear equilibrium in closed form in which risk averse agents take into account future trading opportunities when solving for their optimal portfolio allocation using this framework we then study what restrictions on the disagreement process are needed to generate empirically observed patterns in volume and prices we show that having infrequent but major disagreements leads to autocorrelation in volume and correlation between volume and absolute price changes when agents disagree on past news but agree on the interpretation of current news there is learning and the convergence of agents opinions leads to trade

trade with heterogeneous prior beliefs and asymmetric information no trade theorems have shown that new information will not lead to trade when agents share the same prior beliefs this paper explores the structure of no trade theorems with heterogeneous prior beliefs it is shown how different notions of efficiency under asymmetric information ex ante interim ex post are related to agents prior beliefs as well as incentive compatible and public versions of those efficiency concepts these efficiency results are used to characterize necessary and sufficient conditions on agents beliefs for no trade theorems in different trading environments

market sidedness insights into motives for trade initiation we infer motives for trade initiation from market sidedness we define trading as more two sided one sided if the correlation between the number of buyer and seller initiated trades increases decreases and assess changes in sidedness relative to a control sample around events that identify trade initiators consistent with asymmetric information trading is more one sided before merger news consistent with belief heterogeneity trading is more two sided before earnings and macro announcements with greater dispersion in analyst forecasts and after news with larger announcement surprises we examine the codeterminacy of sidedness bid ask spread volatility number of trades and order imbalance

learning from prices and the dispersion in beliefs i study whether investors use an asset s price to update their beliefs about its payos i show that in a dynamic economy the relationship between the dispersion in investor beliefs and returnvolume characteristics can be used to empirically answer this question when investors have rational expectations re and condition on the price i show that belief dispersion is positively related to expected returns return volatility and correlation between volume and absolute returns but negatively related to return autocorrelation when investors do not use the price as in a dierence of opinions do model these relationships are reversed i test these predictions using the crosssection of returns volume and analyst forecast dispersion over dierent horizons the results are consistent with the re model at quarterly and longer horizons but reject both models at the monthly horizon i show that a hybrid model with some do investors and some re investors can match the short horizon evidence the empirical results are consistent with the idea that while some investors do not use the price in the short run they increase their conditioning on the price over time

informing food security decisions in africa empirical analysis and policy dialogue discussions of economic and agricultural development in africa have focused heavily in recent years on structural adjustment i e basic policy changes aimed at allowing international and domestic markets to play a greater role in coordinating national economic activities often these structural adjustments and accompanying policies aimed at improving economic performance have been based on several implicit assumptions about how african food systems operate yet for many countries little empirical information has been available to test these assumptions hence designing policies too often becomes an exercise in planning without facts this paper argues that not only is there a need to base food security and structural adjustment policies more firmly on empirical information but that the process by which the information is obtained is as important as the information itself agricultural economists and other social scientists can and increasingly should design policy research in africa in ways that simultaneously increase effective demand for empirical information as an input into the ongoing policy process and augment african capacity continually to inform policy deliberations we illustrate the payoffs to such an approach by drawing on selected experience in several african countries weber

finance function matters not size abstract it s fun to pass judgment on waste size usefulness complexity and excessive compensation but as economists we have an analytical structure for thinking about these questions i don t understand it doesn t mean it s bad or regulation will improve it that attitude pervades policy analysis in general and financial regulation in particular and economists do the world a disservice if we echo it i will not offer a competing black box to explain the size of the finance industry i don t claim to estimate the socially optimal size of finance at say 8 267 percent of gdp it s just the wrong question hayek and the failure of planning should teach us a little modesty pronouncing on socially optimal industry size is a waste of time is the finance industry functioning well are there identifiable market or government distortions will proposed regulations help or make matters worse these are useful questions

stock prices and volume the authors undertake a comprehensive investigation of price and volume co movement using daily new york stock exchange data from 1928 to 1987 they adjust the data to take into account well known calendar effects and long run trends to describe the process they use a seminonparametric estimate of the joint density of current price change and volume conditional on past price changes and volume four empirical regularities are found 1 positive correlation between conditional volatility and volume 2 large price movements are followed by high volume 3 conditioning on lagged volume substantially attenuates the leverage effect and 4 after conditioning on lagged volume there is a positive risk return relation article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

trading volume reactions to annual accounting earnings announcements the incremental role of predisclosure information asymmetry abstract this study provides empirical evidence regarding the effect of annual accounting earnings announcements on investors trading behavior we find that the magnitude of trading volume reaction is an increasing function of both the magnitude of the associated price reaction and the level of predisclosure information asymmetry these results are consistent with kim and verrecchia s 1991a theoretical trading volume proposition

household food security and nutrition monitoring the malawi approach to development planning and policy interventions abstract this paper documents implementation of food security and nutrition monitoring fsnm at the household level as a process of information generation for food and nutrition planning and policy making a case study of malawi is presented to describe various stages involved in generating data and converting them into policy decisions the institutional arrangement for food security and nutrition monitoring in malawi is presented along with a conceptual framework for identifying factors that influence food security and nutritional status of the population the process of implementing food security and nutrition monitoring in malawi is presented in two parts the process of information generation and the use of results in policy implementation the costs and benefits of food security and nutrition monitoring in malawi are also documented presenting the lessons from the malawi approach the paper concludes that a decentralized system of data collection processing and analysis is more likely to be successful in planning and policy making for food security and nutritional improvements

differential interpretation of public signals and trade in speculative markets most models of trade in speculative markets assume that agents interpret public information identically we provide empirical evidence on the relation between the volume of trade and stock returns around public announcements and we argue that the evidence is inconsistent with this assumption we then develop a model of trade around public announcements that incorporates differential interpretations and is consistent with the observed volume return relation then we test the standard model of belief revision underlying most models of trade using stock brokerage research analysts earnings forecasts the hypthesis of identical interpretations seems inconsistent with the forecast revisions in these data

water reuse in brazilian manufacturing firms this article examines the factors influencing manufacturing firms water reuse decision and analyses whether the structure of intake water demand differs between firms that adopt water reuse practices and those which do not the first stage of the estimation model involves a probit analysis of the water reuse decision and the second stage employs an endogenous switching regression to estimate the intake water demand equations results suggest that water charges may act as an effective mechanism in inducing firms to undertake water reuse investments and in reducing intake water demand estimates of the water demand price elasticities indicate that plants that reuse water are more sensitive to water price increases than plants without access to reuse technologies

differential interpretation of information in inflation forecasts we test the hypothesis associated with a standard assumption in the theoretical literature on learning that economic agents interpret information identically we use a data set based on a survey o

estimating the structure of industrial water demands the case of canadian manufacturing this study considers water use by canadian manufacturing firms the estimation of water demands is based on a detailed cross sectional survey of establishment level observations on water prices quantities and expenditures industrial water use is modeled as having four components intake treatment prior to use recirculation and discharge average values for the estimated own price elasticity for water intake range from 0 1534 to 0 5885 water recirculation is found to be a substitute for both water intake and water discharge this confirms that expanding the use of economic incentives e g effluent fees may be effective in encouraging firms to reduce their water use while increasing in plant recirculation

price and trading volume reaction surrounding earnings announcements a closer examination the process of information dissemination and interpretation in securities markets is very complex and mostly unobservable while changes in prices and the amount of trading that takes place at the market level provide evidence of information processing verrecchia 1981 demonstrated that these are not sufficient to describe completely the dissemination of information and its interpretation by investors a descriptive study of price changes and trading volume however may still provide some insights into how investors react to information this paper is an empirical investigation of price changes and trading volume during the days surrounding the announcement of quarterly and annual earnings in the wall street journal wsj in the original paper investigating trading volume and price changes surrounding earnings announcements beaver 1968 was primarily concerned with whether the annual earnings announcement had information content i e led to changes in investors assessments of the probability distribution of future returns if there were any significant price changes and or trading volume during the week of the announcement then the annual earnings announcement was assumed to have had

speculative behavior and the dynamics of interacting stock markets abstract we develop a simple agent based financial market model in which heterogeneous speculators apply technical and fundamental analysis to trade in two different stock markets speculators strategy market selections are repeated at each time step and depend on predisposition effects herding behavior and market circumstances simulations reveal that our model is able to explain a number of nontrivial statistical properties of and between international stock markets including bubbles and crashes fat tailed return distributions volatility clustering persistent trading volume coevolving stock prices and cross correlated volatilities against this background our model may be deemed to have been validated

two trees with heterogeneous beliefs spillover effect of disagreement in a model where investors disagree about the fundamentals of two stocks the state price density depends on investor disagreements for both stocks especially the larger stock this implies that disagreement among investors in a large firm has a spillover effect on the pricing of other stocks owned by these investors the pricing effects of investor disagreements crucially depend on the average belief biases empirical findings support the novel model prediction of a disagreement spillover effect and help reconcile some mixed evidence in the literature

belief dispersion in the stock market we develop a dynamic model of belief dispersion with a continuum of investors differing in beliefs the model is tractable and qualitatively matches many of the empirical regularities in a stock price its mean return volatility and trading volume we find that the stock price is convex in cash flow news and increases in belief dispersion while its mean return decreases when the view on the stock is optimistic and vice versa when pessimistic moreover belief dispersion leads to a higher stock volatility and trading volume we demonstrate that otherwise identical two investor heterogeneous beliefs economies do not necessarily generate our main results

the impact of twitter sentiment on renewable energy stocks abstract we study the impact of twitter sentiment and sentiment divergence on returns volatility and trading volumes for renewable energy stocks based on daily time series for twitter sentiment and twitter sentiment divergence we estimate var models and evaluate spillovers between sentiment and renewable energy stock pricing and trading we find that whereas twitter sentiment has no sizeable impact on returns volatility or trading volumes twitter sentiment divergence generates feedback effects on volatility and trading volumes our evidence would indicate that the wisdom of the twitter crowd is not substantial in shaping prices and trading for renewable energy companies

disagreement and the cost of capital we assess how forms of disagreement among investors affect a firm s cost of capital firms experience a lower cost of capital if investors perceive that other investors are ignoring relevant disclosures perceived errors of omission but a higher cost of capital if investors perceive that others are responding to irrelevant disclosures perceived errors of commission the impact of these two sources of disagreement on the cost of capital is determined by the distribution of opinion and the nature of disclosure for example even though aggregated disclosures reveal less to investors aggregated disclosures may decrease the cost of capital by eliminating disagreement associated with perceived errors of commission these and additional results arise because the cost of capital is driven not only by investors uncertainty about the firm s future earnings performance but also by investors uncertainty about the evolution of beliefs which partly determines the path of prices

the economic value of lng in the korean manufacturing industry abstract although lng is an important input to industrial production for manufacturing firms its economic value has been rarely investigated in the literature this paper attempts to estimate the economic value of lng in korea s manufacturing sector by employing the concept of the value of marginal product vmp for this we used data on 328 firms using lng as an input two types of production functions the cobb douglas and trans log functions are applied the result of the specification test indicates that the trans log function is more appropriate for estimating the data the output elasticity and vmp of industrial lng are estimated to be 0 1346 and krw 6844 usd 6 22 per m 3 respectively the results have important implications for various areas of industrial lng management for example any cost benefit analysis of new projects providing industrial lng requires information on the economic value of industrial lng in addition such information is useful for the korean government s future policies on lng pricing

the relation between price changes and trading volume a survey this paper reviews previous and current research on the relation between price changes and trading volume in financial markets and makes four contributions first two empiri cal relations are established volume is positively related to the magnitude of the price change and in equity markets to the price change per se second previous theoretical research on the price volume relation is summarized and critiqued and major insights are emphasized third a simple model ofthe price volume relation is proposed that is consis tent with several seemingly unrelated or contradictory observations and fourth several directions for future research are identified

divergence of sentiment and stock market trading this paper introduces the concept of divergence of sentiment to the behavioral finance literature we measure the distance between people with positive and negative sentiment on a daily basis for 20 countries by using data from status updates on facebook the prediction is that a higher divergence of sentiment leads to more diverging views on prospects and risks and thus to more diverging views on the value of a stock in line with this prediction divergence of sentiment is positively related to trading volume we further predict and find a positive relation between divergence of sentiment and stock price volatility the observed relations are stronger when individual investors are more likely to trade we compare the effect of our country specific measures to a global measure of divergence of sentiment we find that the separate effects of country specific and global divergence measures depend on a country s level of market integration

valuing water for chinese industries a marginal productivity analysis a marginal productivity approach is developed for valuing industrial use of water and applied using data from chinese industrial firms where water as well as capital labour and raw materials are treated as inputs to a production function models on price elasticity of water demand associated with the marginal productivity approach are also developed and estimated for different chinese industrial sectors

a model of competitive stock trading volume a model of competitive stock trading is developed in which investors are heterogeneous in their information and private investment opportunities and rationally trade for both informational and noninformational motives i examine the link between the nature of heterogeneity among investors and the behavior of trading volume and its relation to price dynamics it is found that volume is positively correlated with absolute changes in prices and dividends i show that informational trading and noninformational trading lead to different dynamic relations between trading volume and stock returns

why don t we agree evidence from a social network of investors we study sources of investor disagreement using sentiment of investors from a social media investing platform combined with information on the users investment approaches e g technical fundamental we examine how much of overall disagreement is driven by different information sets versus differential interpretation of information by studying disagreement within and across investment approaches overall disagreement is evenly split between both sources of disagreement but within group disagreement is more tightly related to trading volume than cross group disagreement although both sources of disagreement are important our findings suggest that information differences are more important for trading than differences across market approaches

differential information and dynamic behavior of stock trading volume this article develops a multiperiod rational expectations model of stock trading in which investors have differential information concerning the underlying value of the stock investors trade competitively in the stock market based on their private information and the information revealed by the market clearing prices as well as other public news we examine how trading volume is related to the information flow in the market and how investors trading reveals their private information article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

speculations in option markets enhance allocation efficiency with heterogeneous beliefs and learning abstract many studies investigate the impact of heterogeneous beliefs in the first moment while very few in the second moment this is partially due to continuous time setup which makes it difficult to incorporate heterogeneous beliefs in the second moment in a two period exponential normal model with bayesian learning i demonstrate that heterogeneous prior variances give rise to the economic value of option markets investors speculate in option market and public information improves allocation efficiency of markets only when there is heterogeneity in prior variances heterogeneity in mean is neither a necessary nor a sufficient condition for generating speculations in option markets with heterogeneous beliefs options are non redundant assets which can facilitate side betting and enable investors to take advantage of the disagreements and the differences in confidence this fact leads to a higher growth rate in the investors certainty equivalents and thus a higher equilibrium interest rate furthermore option exhibits a unique feature of enabling signal precision to affect the ex ante risk premium of underlying asset which quadratic derivative and stock do not have

volume volatility and public news announcements we provide new empirical evidence for the way in which financial markets process information our results rely critically on high frequency intraday price and volume data for the s p 500 equity portfolio and u s treasury bonds along with new econometric techniques for making inference on the relationship between trading intensity and spot volatility around public news announcements consistent with the predictions derived from a theoretical model in which investors agree to disagree our estimates for the intraday volume volatility elasticity around important news announcements are systematically below unity our elasticity estimates also decrease significantly with measures of disagreements in beliefs economic uncertainty and textual based sentiment further highlighting the key role played by differences of opinion

the more we know about the fundamental the less we agree on the price i allow trading horizon heterogeneity across groups in a standard differential information model of a financial market this approach can explain the well established phenomenon that after a public announcement trading volume increases more private information is incorporated into prices and volatility increases in such environments public information has the important secondary role of helping agents learn about the information of other agents therefore whenever the correlation between the private information of different groups is sufficiently low a public announcement increases disagreement among short horizon traders regarding the expected selling price even as it decreases disagreement about the fundamental value of the asset additional testable implications are also suggested

informed speculation with imperfect competition competitive rational expectations models have the unsatisfactory property dubbed the schizophrenia problem by hellwig that each trader takes the equilibrium price as given despite the fact that he influences that price an examination of information aggregation in a non competitive rational expectations model using a nash equilibrium in demand functions shows that the schizophrenia problem is avoided by having each trader take into account the effect his demand has on the equilibrium price given a distribution of private information across traders prices reveal less information than in the competition equilibrium and prices no longer become fully informative in the limit as noise trading vanishes or as traders become risk neutral with small traders the model may become one of monopolistic competition not perfect competition in contrast to the competitive model a reasonable model of endogenous acquisition of costly private information is obtained even when traders are risk neutral

dynamic market participation and endogenous information aggregation abstract this paper studies information aggregation in financial markets with recurrent investor exit and entry i consider a dynamic general equilibrium model of asset trading with private information and collateral constraints investors differ in their aversion to knightian uncertainty when uncertainty is high some investors exit the market since exiting investors information is not fully revealed by prices conditional return volatility and risk premia both increase the model also implies that exit is more likely when wealth is more concentrated in the hands of less uncertainty averse investors the model thus predicts less informative prices toward the end of a long boom moreover economies with looser collateral constraints should see more volatility due to exit and partial revelation higher capital requirements potentially improve welfare by inducing more information revelation by prices