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Markets as Information Gathering Tools

Plott, Charles R. (2000) Markets as Information Gathering Tools. Southern Economic Journal, 67 (1). pp. 1-15. ISSN 0038-4038. http://resolver.caltech.edu/CaltechAUTHORS:20140224-141853743

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Abstract

The academic literature, Wall Street commentary, and even daily news reporting reflect a belief that markets can anticipate events. The current movements in the stock market are interpreted as reflecting the likelihood that the Federal Reserve System will change interest rates. Futures markets are interpreted as reflecting the best estimates of things to come. Movements in individual stock prices are thought to anticipate earnings reports or the probability of a merger or buyout. If we want to know about future weather in the South, we should study the orange juice futures. The academic journals are filled with the concept of rational expectations in which current prices are supposed to reflect the sum of all knowledge in the system. Prices, according to this theory, are a statistic that indicates the aggregation of information about underlying states of the economy. Those who are "outsiders" to the information in the system become "insiders" by simply observing the economic activity.


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Additional Information:© 2000 Southern Economic Association. Professor Charles R. Plott presented the Distinguished Guest Lecture at the 1999 Annual Meeting of the Southern Economic Association in New Orleans, Louisiana. He earned his B.S. and M.S. degrees at Oklahoma State University and his Ph.D. at the University of Virginia. He is a Fellow of the American Academy of Arts and Sciences and of the Econometric Society and holds honorary degrees from Universite Pierre Mendès (France) and Purdue University. The financial support of the National Science Foundation and the supporters of the Caltech Laboratory for Economics and Political Science are gratefully acknowledged. Comments and contributions from Kay-Yut Chen have been important for the development of much of the material.
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Record Number:CaltechAUTHORS:20140224-141853743
Persistent URL:http://resolver.caltech.edu/CaltechAUTHORS:20140224-141853743
Official Citation:Markets as Information Gathering Tools Charles R. Plott Southern Economic Journal , Vol. 67, No. 1 (Jul., 2000) , pp. 1-15 Published by: Southern Economic Association Article DOI: 10.2307/1061610 Article Stable URL: http://www.jstor.org/stable/1061610
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:43955
Collection:CaltechAUTHORS
Deposited By: Susan Vite
Deposited On:24 Feb 2014 22:55
Last Modified:15 Apr 2014 20:28

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