We develop a model of investor information choices and asset prices where the availability of information about fundamentals is time-varying. A competitive research sector produces more information when more investors are willing to pay for that research. This feedback, from investor willingness to pay for information to more information production, generates two regimes in equilibrium, one having high prices and low volatility, the other the opposite. Information dynamics move the market between regimes, creating large price drops even with no change in fundamentals. In our calibration, the model suggests an important role for information dynamics in financial crises.
Glasserman, Paul, Harry Mamaysky, and Yiwen Shen. "Dynamic Information Regimes in Financial Markets." Columbia Business School, January 28, 2019.
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