How Financial Markets Create Superstars
48 Pages Posted: 19 Jan 2021 Last revised: 15 Dec 2021
There are 2 versions of this paper
How Financial Markets Create Superstars
How Financial Markets Create Superstars
Date Written: December 14, 2021
Abstract
We show that uninformed speculative trading inflating a firm's stock price can help the firm "fake it till it makes it" by attracting high-quality stakeholders that would not have joined otherwise. Speculators profit from targeting intermediately-transparent firms with highly uncertain prospects, operating in "normal" (neither hot nor turbulent) markets. Unlike speculation inflating prices, short-selling scaring off stakeholders is often unprofitable even when traders have negative information about the firm. Overall, speculative trading is more likely to benefit than harm targeted firms. Uninformed investors can benefit from inflating firms' valuations also in private markets.
Keywords: Speculation, manipulation, superstar firms, unicorns, market efficiency, stakeholders, high-skilled employees, misallocation of resources
JEL Classification: D62, D82, D84, G30
Suggested Citation: Suggested Citation