Learning from Stock Prices and Economic Growth
INSEAD - Finance
September 12, 2011
INSEAD Working Paper No. 2011/90/FIN
A competitive stock market is embedded into a neoclassical growth economy to analyze the interplay between the acquisition of information about firms, its partial revelation through stock prices, capital allocation and income. The stock market allows investors to share their costly private signals in a cost-effective incentive-compatible way. It contributes to economic growth by raising total factor productivity, but its impact is only transitory. Several predictions on the evolution of real and financial variables are derived, including capital efficiency, total factor productivity, industrial specialization, wealth inequality, stock trading intensity, liquidity and return volatility.
Number of Pages in PDF File: 60
Keywords: Growth, Financial Development, Stock Market, Capital Allocation, Learning, Asymmetric Information , Noisy Rational Expectations Equilibrium
JEL Classification: O16, G11, G14
Date posted: September 12, 2011
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