Market Power and Price Informativeness

84 Pages Posted: 12 Mar 2018 Last revised: 8 Aug 2022

See all articles by Marcin T. Kacperczyk

Marcin T. Kacperczyk

Imperial College London - Accounting, Finance, and Macroeconomics; Centre for Economic Policy Research (CEPR)

Jaromir Nosal

Boston College

Savitar Sundaresan

Imperial College Business School

Multiple version iconThere are 2 versions of this paper

Date Written: August 8, 2022

Abstract

We study the distributional effects of asset ownership on price informativeness in a general equilibrium model featuring investors (oligopolists) with different degrees of price impact and ability to learn about individual asset payoffs from private signals as well as price signals, and competitive fringe that only learns from asset prices. We show that price informativeness is non-monotonic in the oligopolists' aggregate size, decreasing in the sector's concentration and in the size of the passive oligopolistic sector. We further show that the size effect can be decomposed into a learning channel capturing investors' quality of private signals and an information pass-through channel measuring the sensitivity of investors' trades to private signals, with the latter one being the primary source of variation in price informativeness relative to the size distribution.

Keywords: Market Power, Information, Institutions, Passive Investing

JEL Classification: G11, G14, G23

Suggested Citation

Kacperczyk, Marcin T. and Nosal, Jaromir and Sundaresan, Savitar, Market Power and Price Informativeness (August 8, 2022). Available at SSRN: https://ssrn.com/abstract=3137803 or http://dx.doi.org/10.2139/ssrn.3137803

Marcin T. Kacperczyk

Imperial College London - Accounting, Finance, and Macroeconomics ( email )

South Kensington campus
London SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Jaromir Nosal

Boston College

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Savitar Sundaresan (Contact Author)

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

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