Financial analysts are an important group of information intermediaries in the capital markets. Their reports, including both earnings forecasts and stock recommendations, are widely transmitted and have a significant impact on stock prices (Womack 1996; Lys and Sohn 1990, among others). Empirical accounting research frequently relies on analysts' forecasts to construct proxies for variables of interest. For example, the error in mean forecast is used as a proxy for earnings surprise (e.g., Brown et al.1987; Wiedman 1996; Bamber et al.1997). More recent papers provide evidence that the mean consensus forecast is used as a benchmark for evaluating firm performance. (Degeorge et al. 1999; Kasznik and McNichols 2002; Lopez and Rees 2002). Another stream of research uses the forecast dispersion as a proxy for the uncertainty or the degree of consensus among analysts and focuses on the information properties of analysts (e.g., Daley et al. 1988; Ziebart 1990; Imhoff and Lobo 1992; Lang and Lundholm 1996; Barron and Stuerke 1998; Barron et al. 1998). In this paper I combine the two streams of research, and investigate how lack of consensus changes the information environment of analysts and whether the markets perceive this change. More specifically, I investigate the amount of private information in a divergent earnings estimate (i.e. one that is above or below the consensus), whether the markets react to it at either the time of the forecast release, at the realization of actual earnings, and whether Regulation Fair Disclosure has changed the information environment differently for high and low dispersion firms.

Some corporate insiders hold insider equity holdings in multiple companies (portfolio insiders). I hypothesize that information can be garnered not only from their trades (e.g., an insider sale of firm A on day t), but from their not-traded securities (e.g. the insider's decision not to sell firms B and C on day t). Specifically, an insider's decision not to sell (purchase) security B at the time of the sale (purchase) of security A, is a positive (negative) signal for security B, the not-sold (not-bought) security. The paper presents three major empirical findings. First, portfolio insider not-sold securities following a sale earn large risk-adjusted returns outperforming the not-purchased securities following a purchase. Second, portfolio insiders' purchases are more informative than single-firm insiders' purchases. Finally, the results suggest that abnormal returns associated with insider purchases result from markets reacting to the revelation of the insider purchase while abnormal returns associated with not-sold securities appear to result from insiders delaying sales prior to positive firm-specific events.

In this dissertation I study theories on auctions with participation costs with various information structure. Chapter II studies equilibria of second price auctions with differentiated participation costs. We consider equilibria in independent private values environments where bidders? entry costs are common knowledge while valuations are private information. We identify two types of equilibria: monotonic equilibria in which a higher participation cost results in a higher cutoff point for submitting a bid, and neg-monotonic equilibria in which a higher participation cost results in a lower cutoff point. We show that there always exists a monotonic equilibrium, and further, that the equilibrium is unique for concave distribution functions and strictly convex distribution functions with some additional conditions. There exists a neg-monotonic equilibrium when the distribution function is strictly convex and the difference of the participation costs is sufficiently small. We also provide comparative static analysis and study the limit status of equilibria when the difference in bidders' participation costs approaches zero. Chapter III studies equilibria of second price auctions when values and participation costs are both privation information and are drawn from general distribution functions. We consider the existence and uniqueness of equilibrium. It is shown that there always exists an equilibrium for this general economy, and further there exists a unique symmetric equilibrium when all bidders are ex ante homogenous. Moreover, we identify a sufficient condition under which we have a unique equilibrium in a heterogeneous economy with two bidders. Our general framework covers many relevant models in the literature as special cases. Chapter IV characterizes equilibria of first price auctions with participation costs in the independent private values environment. We focus on the cutoff strategies in which each bidder participates and submits a bid if his value is greater than or equal to a critical value. It is shown that, when bidders are homogenous, there always exists a unique symmetric equilibrium, and further, there is no other equilibrium when valuation distribution functions are concave. However, when distribution functions are elastic at the symmetric equilibrium, there exists an asymmetric equilibrium. We find similar results when bidders are heterogenous.

This dissertation considers the problems of coordinating different supply chain inventory systems with private information under deterministic settings. These systems studied are characterized by the following properties: (a) each facility in the system has self decision-making authority, (b) cost parameters of each facility are regarded as private information that no other facilities in the system have access to, and (c) partial information is shared among the facilities. Because of the above properties, the existing approaches for systems with global information may not be applicable. Thus, new approaches for coordinating supply chain inventory systems with private information are needed. This dissertation first studies two two-echelon distribution inventory systems. Heuristics for finding the replenishment policy of each facility are developed under global information environment. In turn, the heuristics are modified to solve the problems with private information. An important characteristic of the heuristics developed for the private information environment is that they provide the same solutions as their global information counterpart. Then, more complex multi-echelon serial and assembly supply chain inventory systems with private information are studied. The solution approach decomposes the problem into separate subproblems such that the private information is divided as required. Global optimality is sought with an iterative procedure in which the subproblems negotiate the material flows between facilities. At the core of the solution procedure is a node-model that represents a facility and its corresponding private information. Using the node-model as a building block, other supply chains can be formed by linking the node-models according to the product and information flows. By computational experiments, the effect of the private information on the performance of the supply chain is tested by comparing the proposed approach against existing heuristics that utilize global information. Experimental results show that the proposed approach provides comparable results as those of the existing heuristics with global information.

The first essay provides evidence on the origins of the size and value premiums by examining how order flow in the SMB and HML portfolios relates to economic conditions and investor sentiment. We find that buying pressure for SMB and HML is lower (increases) when economic conditions are expected to deteriorate (improve), while it is unrelated to proxies for investor sentiment and sales growth. These findings are consistent with big stock and value stocks being regarded as hedges against adverse shifts in economic conditions, and support a rational state variable interpretation of the size and value premiums. The second essay finds that the marketwide average of individual stock order flows and the difference between the average order flow for big stocks and the average order flow for small stocks (order flow differential) predict growth rates in real GDP, industrial production, and corporate earnings. The predictive significance of these two measures is robust to controls for return factors, suggesting a role for order flow in forecasting stock returns. Consistently, we show that an increase in the order flow differential forecasts higher returns for ten size-sorted portfolios and significantly greater market and size premiums in the subsequent quarter, even after accounting for a large host of variables. These findings are consistent with a world where aggregate order flow brings together dispersed information from heterogeneously informed investors. The third essay shows that stocks that are harder to value (stocks with less valuable growth options and more dispersed analyst forecasts) and stocks that attract less uninformed trading activity (small stocks, illiquid stocks, stocks not covered by analysts) have higher price impacts, greater probabilities of informed trading, and more private information in returns. In the time-series, reductions in trading activity and consumer sentiment increase the average price impact of trading and reduce the share of firm-specific information in returns. Recessions see high price impacts, low trading activity, and a smaller share of private signals in price movements. This reduction in private information seems to have an impact on the informativeness of prices for corporate managers: the sensitivity of corporate investment to the prices is significantly lower during recessions. / Finance

Un mercado implica, de manera general, un conjunto de interacciones relativamente complejas entre agentes a lo largo del tiempo. En consecuencia, recientes investigaciones en el campo de las finanzas intentan integrar el comportamiento estratégico de los agentes en los modelos existentes. Dos importantes líneas de investigación en las que la incidencia del comportamiento estratégico ha sido ampliamente explotado son la valoración de la deuda de la empresa y la microestructura del mercado. En el segundo capítulo se desarrolla un eventual modelo de valoración para bonos de cupón cero en mora. Con el objetivo de destacar el papel del vencimiento y de la colocación de la demanda del prestatario en la jerarquía de la deuda de una empresa, tomaremos el caso de una empresa que emita dos bonos con vencimiento y prioridad distintos. Este modelo nos permite analizar las implicaciones, tanto de la renegociación de la deuda como de la estructura del capital de la empresa en el precio de los bonos. Veremos que la renegociación conlleva un cambio significativo en el precio de los bonos y que su efecto se dispersa a través de varios canales: incrementando el valor de la empresa, reasignando pagos y evitando liquidaciones costosas. Asimismo, la presencia de dos acreedores tiene implicaciones cualitativamente diferentes en precio, y a la vez pone énfasis en la importancia de los contratos de bonos y la renegociación de la totalidad de la deuda. En el tercer capítulo se desarrolla el modelo de tráfico de información privilegiada en el que los agentes tienen información privada sobre el valor de liquidación o sobre la oferta y actúan de modo estratégico para maximizar sus beneficios. El operador de ofertas informado tiene un doble papel en la creación de mercados y en la revelación de información. Este operador, no sólo revela parte de la información que posee, sino que también induce a otros operadores a revelar una mayor parte de su información privada. La presencia de varios tipos de información reduce la liquidez del mercado e induce a la no-monotonicidad de los indicadores de mercado respecto a la variación del valor de liquidación. El cuarto capítulo aborda temas de microestructura, esta vez en relación con la tributación con problemas de incertidumbre. Se desarrolla un modelo en el que consideramos las implicaciones del informe fiscal en los beneficios por tráfico de información privilegiada. Se modela la interacción entre la empresa y la agencia de auditoría fiscal como relación principal-agente sin compromiso. Por otro lado, los mercados financiero se modelan de acuerdo con Kyle (1985), con la diferencia de que el creador de mercados establecerá un precio condicionado por dos factores el flujo total de pedidos y el informe fiscal recibido por la agencia de auditoría fiscal. Modelar la interacción entre la agencia tributaria y la empresa nos permite endogenizar el factor público. Nuestro modelo apunta a que los efectos que producen las interacciones entre la empresa y la agencia de auditoría fiscal en el comportamiento del creador de mercados y el poseedor de información privilegiada son significativos. Así pues, existen varios canales a través de los cuales el informe fiscal influye en los beneficios de quien posee información privilegiada. El informe fiscal afecta al valor de liquidación de la empresa que opera en mercados financieros de dos modos: mediante los impuestos directos pagados honradamente y mediante los esfuerzos de auditoría (lo que en nuestro modelo depende del informe fiscal). A su vez, el valor de liquidación afecta a la demanda y, consecuentemente, al flujo de pedidos. Finalmente, puesto que el creador de mercados utiliza los informes fiscales como factor esto afecta directamente a los precios establecidos por el creador de mercados y, consecuentemente, a toda la actuación del mercado. / A market typically involves a relatively complex set of interactions between agents over time. Consequently, recent research in finance tries to integrate strategic behaviour of the agents in the existing models. Two important directions of research where the incidence of strategic behavior has been widely exploited are valuation of corporate debt and market microstructure. In the second chapter we develop a contingent valuation model for zero-coupon bonds with default. In order to emphasize the role of maturity time and place of the lender's claim in the hierarchy of debt of a firm, we consider a firm that issues two bonds with different maturities and different seniorage. The model allows us to analyze the implications of both debt renegotiation and capital structure of a firm on the prices of bonds. We obtain that renegotiation brings about a significant change in the bond prices and that the effect is dispersed through different channels: increasing the value of the firm, reallocating payments, and avoiding costly liquidation. Moreover, the presence of two creditors leads to qualitatively different implications for pricing, while emphasizing the importance of bond covenants and renegotiation of the entire debt.In the third chapter we develop a model of insider trading where agents have private information either about liquidation value or about supply and behave strategically to maximize their profits. The supply informed trader plays a dual role in market making and in information revelation. This trader not only reveals a part of the information he owns, but he also induces the other traders to reveal more of their private information. The presence of different types of information decreases market liquidity and induces non-monotonicity of the market indicators with respect to the variance of liquidation value.The fourth chapter is concerned also with microstructure issues, this time in connection with a taxation under uncertainty problem. We develop a model in which we consider the implications of tax report on the profits from insider trading. We model the interaction between the firm and the tax auditing agency as a principal-agent relationship with no commitment. On the other hand, the financial markets are modelled as in Kyle (1985), with the difference that the market maker will set the price conditional on two signals: the total order flow and the tax report received by the tax auditing agency. Modelling the interaction between the tax agency and the firm allows us actually to endogenize the public signal. Our model points out that the effects the interactions between the firm and the tax auditing agency have both on market maker's and insider's behaviour are significant. Thus, there exist several channels through which the tax report affects the profits of the insider. The tax report affects the liquidation value of the firm traded in financial markets in two ways: through the direct taxes honestly paid and through the auditing effort (which in our model is contingent on the tax report). On its turn, the liquidation value affects the demand and therefore the order flow. Finally, since the market maker uses the tax report as a signal, it directly affects the pricing rule set by the market maker, and therefore, all the market performance.

If a quote contains information as formulated in theory, then it is possible to elicit the information from each quote. We offer a simple method to extract the private and the public information elements from the quote revision. The extraction is only required to know the trade direction of the previous trade. We then present empirical evidence that our estimates are informational pertinent by showing that they are highly correlated with transaction returns. Furthermore, contrasting to the pattern of the bid-ask spread, we show that the intraday private information elements are converging as trading progresses. This phenomenon is consistent to the prediction in the theory. Our public information elements also have a similar declining pattern as that of the private information element only with a different reason.

In the early stage, the fixed exchange rate policy was established in Taiwan, with focus on the exchange of NT Dollar to US dollar. After undergoing the changes of flexible exchange rate system, the regulation of exchange rate gradually renovates. On January 30, 1991, the exchange rate system changed to a managed floating system that allows the exchange rate to be more liberal. The spot USD trading price is no longer restricted by the upper or lower limit among banks, and the negotiation of trading price is completely free. As the exchange for NTD to USD becomes more liberal, the issue of the factors behind the price fluctuation on NTD to USD has become an interesting subject to study. This paper investigates Taiwan¡¦s foreign exchange market in order to discover the factors that cause the price volatility, whether it is private information or macroeconomic news announcement of public information. This study examines the exchange rate occurred every 15 minutes during January 5, 1992 to November 27, 2001. Given the result that the increase of macroeconomic news announcement does not increase the volatility, the volatility in Taiwan¡¦s foreign exchange market is mainly caused by private information, not public information. Although the return variance is comparatively higher than the return variance in other normal time period during the macroeconomic news announcement, the highest return variance before the trade close does not occur at the time of public news announcement. It represents that the occurrence of volatility is not affected by the macroeconomic news announcement. If foreign exchange volatility is not affected by macroeconomic news announcement of public information, then private information might be the major factor affecting the price volatility. The findings are as follows: 1. The volatility in trading period is much higher than the volatility in non-trading period, demonstrating the existence of ¡§exchange message effectiveness¡¨. Meanwhile, it also states that public information is not the only information existing in the market. Even at the most efficient market, the informative pricing has reflected all the public information. The macroeconomic news announcement of public information would not affect the price volatility, the asset pricing volatility is affected by the private information. 2. Trading time become longer which makes the informed trader not necessary to trade in a hurry, diverging the volatility of transaction. 3. The volatility at closing period increases because of the occurrence of private information. It may downgrade to public information during non-trading period. People holding valuable private information would trade before the market is close. Concluded from above, it can be discovered that the private information has played an important role incurring the large volatility in Taiwan¡¦s foreign exchange market.

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In this thesis, we study Bayesian games with two players and two actions (2 by 2 games) in realistic settings where private information is correlated or players have scarcity of attention. The contribution of this thesis is to shed further light on strategic interactions in realistic settings. Chapter 1 gives an introduction of the research and contributions of this thesis. In Chapter 2, we study how the correlation of private information affects rational agents’ choice in a symmetric game of strategic substitutes. The game we study is a static 2 by 2 entry game. Private information is assumed to be jointly normally distributed. The game can, for some parameter values, be solved by a cutoff strategy: that is enter if the private payoff shock is above some cutoff value and do not enter otherwise. Chapter 2 shows that there is a restriction on the value of correlation coefficient such that the game can be solved by the use of cutoff strategies. In this strategic-substitutes game, there are two possibilities. When the game can be solved by cutoff strategies, either, the game exhibits a unique (symmetric) equilibrium for any value of correlation coefficient; or, there is a threshold value for the correlation coefficient such that there is a unique (symmetric) equilibrium if the correlation coefficient is below the threshold, while if the correlation coefficient is above the threshold value, there are three equilibria: a symmetric equilibrium and two asymmetric equilibria. To understand how parameter changes affect players’ equilibrium behaviour, a comparative statics analysis on symmetric equilibrium is conducted. It is found that increasing monopoly profit or duopoly profit encourages players to enter the market, while increasing information correlation or jointly increasing the variances of players’ prior distribution will make players more likely to choose entry if the equilibrium cutoff strategies are below the unconditional mean, and less likely to choose entry if the current equilibrium cutoff strategies are above the unconditional mean. In Chapter 3, we study a 2 by 2 entry game of strategic complements in which players’ private information is correlated. As in Chapter 2, the game is symmetric and private information is modelled by a joint normal distribution. We use a cutoff strategy as defined in Chapter 2 to solve the game. Given other parameters, there exists a critical value of the correlation coefficient. For correlation coefficient below this critical value, cutoff strategies cannot be used to solve the game. We explore the number of equilibria and comparative static properties of the solution with respect to the correlation coefficient and the variance of the prior distribution. As the correlation coefficient changes from the lowest feasible (such that cutoff strategies are applicable) value to one, the sequence of the number of equilibrium will be 3 to 2 to 1, or 3 to 1. Alternatively, under some parameter specifications, the game exhibits a unique equilibrium for all feasible value of the correlation coefficient. The comparative statics of equilibrium strategies depends on the sign of the equilibrium cutoff strategies and the equilibrium’s stability. We provide a necessary and sufficient condition for the existence of a unique equilibrium. This necessary and sufficient condition nests the sufficient condition for uniqueness given by Morris and Shin (2005). Finally, if the correlation coefficient is negative for the strategic-complements games or positive for the strategic-substitutes games, there exists a critical value of variance such that for a variance below this threshold, the game cannot be solved in cutoff strategies. This implies that Harsanyi’s (1973) purification rationale, supposing the perturbed games are solved by cutoff strategies and the uncertainty of perturbed games vanishes as the variances of the perturbation-error distribution converge to zero, cannot be applied for a strategic-substitutes (strategic-complements) game with dependent perturbation errors that follow a joint normal distribution if the correlation coefficient is positive (negative). However, if the correlation coefficient is positive for the strategic-complements games or negative for the strategic-substitutes games, the purification rationale is still applicable even with dependent perturbation errors. There are Bayesian games that converge to the underlying complete information game as the perturbation errors degenerate to zero, and every pure strategy Bayesian Nash equilibrium of the perturbed games will converge to the corresponding Nash equilibrium of the complete information game in the limit. In Chapter 4, we study how scarcity of attention affects strategic choice behaviour in a 2 by 2 incomplete information strategic-substitutes entry game. Scarcity of attention is a common psychological characteristic (Kahneman 1973) and it is modelled by the rational inattention approach introduced by Sims (1998). In our game, players acquire information about their own private payoff shocks (which here follows a high-low binary distribution) at a cost. We find that, given the opponent’s strategy, as the unit cost of information acquisition increases a player’s best response will switch from acquiring information to simply comparing the ex-ante expected payoff of each action (using the player’s prior). By studying symmetric Bayesian games, we find that scarcity of attention can generate multiple equilibria in games that ordinarily have a unique equilibrium. These multiple equilibria are generated by the information cost. In any Bayesian game where there are multiple equilibria, there always exists one pair of asymmetric equilibria in which at least one player plays the game without acquiring information. The number of equilibria differs with the value of the unit information cost. There can be 1, 5 or 3 equilibria. Increasing the unit information cost could encourage or discourage a player from choosing entry. It depends on whether the prior probability of a high payoff shock is greater or less than some threshold value. We compare the rational inattention Bayesian game with a Bayesian quantal response equilibrium game where the observation errors are additive and follow a Type I extreme value distribution. A necessary and sufficient condition is established such that both the rational inattention Bayesian game and quantal response game have a common equilibrium.