How Financial Markets Create Superstars

48 Pages Posted: 19 Jan 2021 Last revised: 15 Dec 2021

See all articles by Spyros Terovitis

Spyros Terovitis

University of Amsterdam, Finance Group

Vladimir Vladimirov

University of Amsterdam Business School

Multiple version iconThere are 2 versions of this paper

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

Terovitis, Spyros and Vladimirov, Vladimir, How Financial Markets Create Superstars (December 14, 2021). Available at SSRN: https://ssrn.com/abstract=3745622 or http://dx.doi.org/10.2139/ssrn.3745622

Spyros Terovitis

University of Amsterdam, Finance Group ( email )

M3.04, Amsterdam Business School
Plantage Muidergracht 12
Amsterdam, 1018TV
Netherlands

Vladimir Vladimirov (Contact Author)

University of Amsterdam Business School ( email )

Roetersstraat 18
Amsterdam, 1018WB
Netherlands

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