60 Pages Posted: 12 Sep 2011
Date Written: September 12, 2011
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.
Keywords: Growth, Financial Development, Stock Market, Capital Allocation, Learning, Asymmetric Information , Noisy Rational Expectations Equilibrium
JEL Classification: O16, G11, G14
Suggested Citation: Suggested Citation
Peress, Joel, Learning from Stock Prices and Economic Growth (September 12, 2011). INSEAD Working Paper No. 2011/90/FIN. Available at SSRN: https://ssrn.com/abstract=1926164 or http://dx.doi.org/10.2139/ssrn.1926164
By Kent Daniel