Market Power and Price Informativeness

71 Pages Posted: 12 Mar 2018 Last revised: 21 Mar 2023

See all articles by Marcin T. Kacperczyk

Marcin T. Kacperczyk

Imperial College London - Accounting, Finance, and Macroeconomics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Jaromir Nosal

Boston College

Savitar Sundaresan

Imperial College Business School

Multiple version iconThere are 2 versions of this paper

Date Written: March 21, 2023

Abstract

We study the distributional effects of asset ownership on price informativeness in a general equilibrium model. The model features investors (oligopolists) with different degrees of price impact and abilities to learn about individual asset payoffs from private and price signals, and a 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 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 (March 21, 2023). 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

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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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