Rational Asset Price Movements Without News

48 Pages Posted: 14 Jul 2000 Last revised: 10 Oct 2022

See all articles by David H. Romer

David H. Romer

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: July 1992

Abstract

This paper argues that an important part of movements in asset prices may be caused by neither external news nor irrationality, but the by revelation of information by the trading process itself. Two models are developed that illustrate this general idea. One model is based on investor uncertainty about the quality of other investors' information: the other is based on widespread dispersion of information and small costs to trading. The analysis is used to suggest a possible rational explanation of the October 1987 crash.

Suggested Citation

Romer, David H., Rational Asset Price Movements Without News (July 1992). NBER Working Paper No. w4121, Available at SSRN: https://ssrn.com/abstract=226812

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