RATIONAL ASSET-PRICE MOVEMENTS WITHOUT NEWS

This paper argues that an important part of movements in asset prices may be caused by neither external news nor irrationality, but by the r evelation of information by the trading process itself. Two models are developed that illustrate this general idea. One model is based on in vestor uncertainty about the quality of other investors' information; the other is based on widespread dispersion of information and small c osts to trading. The analysis is used to suggest a possible rational e xplanation of the October 1987 crash.