Abstract
The concept of “information” is central to our understanding of financial markets, both in theory and in practice. Analysing information is not only a critical part of the activities of many financial practitioners, but also plays a central role in the Efficient Market Hypothesis (EMH). The central claim of this paper is that different data can count as information in financial markets and that particular investors do not consider all of the available data. This suggests that firstly, saying the price of a stock should be $X once a particular piece of information has been incorporated in the price is only justifiable if we know that this information really is relevant for other investors. Secondly, the EMH is often tested by looking at market behaviour after the release of information; again, this is only justified if we know that other market participants share the view that this is information. The purpose of this chapter is to suggest that there are good reasons for thinking that we do not know this. Finally, this chapter also suggests that bubbles in financial markets are best understood in terms of salience of information, rather than irrationality.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Notes
- 1.
A brief, but thorough, overview of the main hedge fund strategies can be found at www.hedgefundresearch.com in the “Hedge Fund Strategy Classification” section. Capocci (2013) provides a more comprehensive analysis.
References
Alexakis, C., Patra, T., & Poshakwale, S. (2010). Predictability of stock returns using financial statement information: Evidence on semi-strong efficiency of emerging Greek stock market. Applied Financial Economics, 20, 1321–1326.
Capocci, D. (2013). The complete guide to hedge funds and hedge fund strategies. London: Palgrave MacMillan.
Coulton, J. J., Dinh, T., & Jackson, A. B. (2016). The impact of sentiment on price discovery. Accounting and Finance, 56, 669–694.
Fama, E. F. (1970). Efficient capital markets: A review of theory and empirical work. The Journal of Finance, 25, 383–417.
Hüsler, A., Sornette, D., & Hommes, C. H. (2013). Super-exponential bubbles in lab experiments: Evidence for anchoring over-optimistic expectations on price. Journal of Economic Behaviour and Organization, 92, 304–316.
Khan, A. Q., & Ikram, S. (2010). Testing semi-strong form of efficient market hypothesis in relation to the impact of foreign institutional investors’ (FII’s) investments on Indian capital market. International Journal of Trade, Economics and Finance, 1, 373–379.
Lewellen, J. (2004). Predicting returns with financial ratios. Journal of Financial Economics, 74, 209–235.
McCauley, J. L. (2004). Dynamics of markets: Econophysics and finance. Cambridge, UK: Cambridge University Press.
Modigliani, F., & Miller, M. H. (1958). The cost of capital, corporation finance and the theory of investment. The American Economic Review, 48, 261–297.
Olibe, K. O. (2016). Security returns and value responses around international financial reporting standards (IFRS) earnings announcements. The International Journal of Accounting, 51, 240–265.
Rutterford, J. (2004). From dividend yield to discounted cash flow: A history of UK and US equity valuation techniques. Accounting, Business & Financial History, 14, 115–149.
Scherbina, A. (2013). Asset price bubbles: A selective survey (IMF Working Paper). Institute for Capacity Development. Available at www.imf.org
Skyrms, B. (2013). Signals: Evolution, learning and information. Oxford, UK: Oxford University Press.
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2019 Springer Nature Switzerland AG
About this chapter
Cite this chapter
Greene, C. (2019). Information in Financial Markets. In: Addis, M., Lane, P.C.R., Sozou, P.D., Gobet, F. (eds) Scientific Discovery in the Social Sciences. Synthese Library, vol 413. Springer, Cham. https://doi.org/10.1007/978-3-030-23769-1_6
Download citation
DOI: https://doi.org/10.1007/978-3-030-23769-1_6
Published:
Publisher Name: Springer, Cham
Print ISBN: 978-3-030-23768-4
Online ISBN: 978-3-030-23769-1
eBook Packages: Religion and PhilosophyPhilosophy and Religion (R0)