Seminar 217, Risk Management: The Implication of Information Network in Market Quality and Market Reaction to Public Announcements

Seminar: Risk Seminar | April 30 | 11 a.m.-12:30 p.m. | 1011 Evans Hall

 Speakers: Senyang Zhao, SWUFE

 Consortium for Data Analytics in Risk

This research studies the role of information network in market quality and market reaction to public announcements. We propose in this article a three-period rational noisy expected equilibrium model by taking both public and private information into account with an embedded information network structure among market traders. Closed form expressions for market reaction and market quality are derived as a function of topological structure of the network and several novel results are revealed. The trading volume and price change have different responses to network connectedness. As network connectedness increases, there is a downward trend for price change. The downward trend are decreasing which reflects that the market efficiency can not increase to infinite in reality. However, the change of trading volume is uncertain because it depends on two attributes of the network, the uniformity and connectedness, it is hard to compare which one dominate another one. To the market quality, the information precision can increase market liquidity, market efficiency and decrease the cost of capital, network connectedness plays the same role in market efficiency and cost of capital, while it has a non-monotone influence towards market liquidity. And also network will suppress the effect caused by disclosure.

 jschellenberg@berkeley.edu