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Andreas UTHEMANN (London School of Economics)- “Higher-Order Uncertainty in Financial Markets: Evidence from a Consensus Pricing Service” Polytechnique Recruitment

January 30, 12:15 pm - 1:30 pm

Time: 12:15 pm – 1:30 pm
Date: JANUARY 30, 2019
Place: Room 3001

Andreas UTHEMANN (London School of Economics)- “Higher-Order Uncertainty in Financial Markets: Evidence from a Consensus Pricing Service” Avec Lerby M. ERGUN

Abstract:

We assess the ability of an information aggregation mechanism to reduce valuation uncertainty in an over-the-counter market. The analysis is based on a unique dataset of price estimates for S&P 500 index options that major financial institutions provide to a consensus pricing service. We consider two dimensions of uncertainty: uncertainty about fundamental asset values and strategic uncertainty about competitors’ valuations. We estimate a structural model of learning from prices. From this, we obtain empirical measures of fundamental and strategic uncertainty that are based on market participants’ posterior beliefs. Both dimensions of valuation uncertainty vary substantially across the different segments of the market. We use the structural model to assess subscribers’ welfare under alternative information structures. We show that the main contribution of the service is to reduce subscribers’ uncertainty about competitors’ valuations rather than uncertainty about asset values themselves.

Details

Date:
January 30
Time:
12:15 pm - 1:30 pm
Event Category:

Venue

3001

Organizer

Edouard CHALLE