Header

UZH-Logo

Maintenance Infos

Rumours and markets


Kosfeld, M (2005). Rumours and markets. Journal of Mathematical Economics, 41(6):646-664.

Abstract

The paper presents a simple model to study the effects of rumours on markets. Agents in our economy communicate with their local neighbours which gives rise to the possible spread of a rumour. As the rumour affects beliefs of the agents the evolution of the rumour has a direct impact on market outcomes. Our results show that if the rumour dies out long-run equilibrium prices correspond to pre-rumour values. However, if the rumour stays present it produces a price run-up for the good that is positively targeted by the rumour. Price run-ups related to rumours have been observed in empirical studies by Rose [Rose, A.M., 1951. Rumor in the stock market. Public Opinion Quarterly 15, 461–486], Pound and Zeckhauser [Pound, J., Zeckhauser, R., 1990. Clearly heard on the street: the effect of takeover rumors on stock prices. Journal of Business 63, 291–308] and Zivney et al. [Zivney, T., Bertin, W.J., Torabzadeh, K.M., 1996. Overreaction to take-over speculation. Quarterly Review of Economics and Finance 36, 89–115]. The present model provides an analytical foundation for this finding.

Abstract

The paper presents a simple model to study the effects of rumours on markets. Agents in our economy communicate with their local neighbours which gives rise to the possible spread of a rumour. As the rumour affects beliefs of the agents the evolution of the rumour has a direct impact on market outcomes. Our results show that if the rumour dies out long-run equilibrium prices correspond to pre-rumour values. However, if the rumour stays present it produces a price run-up for the good that is positively targeted by the rumour. Price run-ups related to rumours have been observed in empirical studies by Rose [Rose, A.M., 1951. Rumor in the stock market. Public Opinion Quarterly 15, 461–486], Pound and Zeckhauser [Pound, J., Zeckhauser, R., 1990. Clearly heard on the street: the effect of takeover rumors on stock prices. Journal of Business 63, 291–308] and Zivney et al. [Zivney, T., Bertin, W.J., Torabzadeh, K.M., 1996. Overreaction to take-over speculation. Quarterly Review of Economics and Finance 36, 89–115]. The present model provides an analytical foundation for this finding.

Statistics

Citations

42 citations in Web of Science®
43 citations in Scopus®
Google Scholar™

Altmetrics

Downloads

69 downloads since deposited on 11 Feb 2008
12 downloads since 12 months
Detailed statistics

Additional indexing

Item Type:Journal Article, refereed
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Uncontrolled Keywords:Rumour, Market, Price run-up
Language:English
Date:September 2005
Deposited On:11 Feb 2008 12:29
Last Modified:05 Apr 2016 12:22
Publisher:Elsevier
ISSN:0304-4068
Publisher DOI:https://doi.org/10.1016/j.jmateco.2004.05.001

Download

Download PDF  'Rumours and markets'.
Preview
Filetype: PDF
Size: 291kB
View at publisher