Market Power and Price Informativeness

47 Pages Posted: 13 Aug 2018

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 13, 2018

Abstract

The asset ownership structure in financial markets worldwide is dominated by large institutional investors. Relative to households, institutional investors own a larger fraction of assets, have a more concentrated distribution of ownership, and have significant active and passive components. We study the implications of these facts for the informational content of prices using a general equilibrium portfolio-choice model with market power and endogenous information acquisition. We decompose the effects of a changing market structure into three channels: (i) a size channel, (ii) a concentration channel, and (iii) an information passthrough channel, which we show is the quantitatively largest of the three. We find that price informativeness is non-monotonic in institutional sector's size, monotonically decreasing in institutional sector's concentration, and monotonically decreasing in the size of the passive sector both due to quantity effect and an amplifying learning effect.

Suggested Citation

Kacperczyk, Marcin T. and Nosal, Jaromir and Sundaresan, Savitar, Market Power and Price Informativeness (August 13, 2018). Available at SSRN: https://ssrn.com/abstract=3230005 or http://dx.doi.org/10.2139/ssrn.3230005

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

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
5
Abstract Views
76
PlumX Metrics