Template-type: ReDIF-Paper 1.0
Author-Name: Sara Negrelli
Title: Bubbles and Persuasion with Second Order Uncertainty
Abstract: Recent empirical studies suggest that, during times of unexpected innovation, agents heterogeneously update their beliefs about an asset fundamental value, and they are uncertain about other agents’ beliefs on it. In this paper I show that, when there is uncertainty about the market sentiment, defined as other investors’ beliefs over an asset fundamental value, market manipulation can act through a previously unconsidered channel, by misleading agents’ learning on the market sentiment. This novel type of market manipulation becomes a severe concern with the recent diffusion of big data on agents’ beliefs, as it could strengthen existing financial bubbles, or even give rise to new ones.spect to anonymity; at the same time, the probability of the CBDC introduction increases if a return can be paid on it, and/or its implementation can guarantee at least the counterparty anonymity.
Classification-JEL:C73, D82, D83, D84, G14, G24
Keywords: Bubbles, Heterogenous Priors, Higher-Order Beliefs, Market Manipulation, Bayesian Persuasion
Length: 45 pages 
Number: 1876
Creation-Date: 2018
File-URL: https://repec.unibocconi.it/baffic/baf/papers/cbafwp1876.pdf
File-Format: application/pdf
File-Size: 633
Handle: RePEc:baf:cbafwp:cbafwp1876