Stock Market Efficiency and Economic Efficiency: Is There a Connection?

Topics:
Financial Regulations
Tags:
Finance,
Investment,
Stock,
Stock Market
Source:
NBER.org: National Bureau of Economic Research

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Overview: This paper present a model of the stock market in which: (i) managers have discretion in making investments and must be given the right incentives; and (ii) stock market traders may have important information that managers do not have about the value of prospective investment opportunities. In equilibrium, information in stock prices will guide investment decisions because managers will be compensated based on informative stock prices in the future. The stock market indirectly guides investment by transferring two kinds of information: information about investment opportunities and information about managers' past decisions.

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Format: PDF | Size: 1,862KB | Date: Mar 1997 | Pages: 49

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