Firm Investment and Price Informativeness

43 Pages Posted: 31 Oct 2015 Last revised: 21 Nov 2015

See all articles by Jan Schneemeier

Jan Schneemeier

Indiana University - Kelley School of Business

Date Written: November 20, 2015

Abstract

I theoretically investigate how the informational content of stock prices is affected by the structure of firms' capital investment decisions. The efficiency of stock prices is determined by the weight firms attach to private information and by the extent to which investment is predictable. Both factors attract informed trading and lead to more revealing prices. The model predicts that i) individual stock prices should be more informative than aggregate prices, ii) firms with better managers should have more informative prices, iii) a higher degree of stock-based compensation reduces price efficiency and iv) more heterogenous markets are less price efficient.

Keywords: price informativeness, real efficiency, feedback effects

JEL Classification: D61, D62, G14, G30

Suggested Citation

Schneemeier, Jan, Firm Investment and Price Informativeness (November 20, 2015). Available at SSRN: https://ssrn.com/abstract=2684128 or http://dx.doi.org/10.2139/ssrn.2684128

Jan Schneemeier (Contact Author)

Indiana University - Kelley School of Business ( email )

1275 E 10th St
Bloomington, IN 47405
United States

HOME PAGE: http://www.jan-schneemeier.com

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