How Financial Markets Create Superstars

52 Pages Posted: 23 Dec 2020

See all articles by Spyros Terovitis

Spyros Terovitis

University of Amsterdam, Finance Group

Vladimir Vladimirov

University of Amsterdam Business School; Centre for Economic Policy Research (CEPR); Finance Theory Group (FTG)

Multiple version iconThere are 2 versions of this paper

Date Written: December 2020

Abstract

This paper shows that manipulative trading by speculators can create value for shareholders by simulating a "buzz" around a firm and turning it into a star. The speculators' profit comes from helping the firm attract stakeholders, such as high-quality employees and business partners, that would have otherwise not worked with it. Thus, price manipulation leads to a misallocation of talent and resources. Similar to speculators, investors in primary markets can benefit from inflating firms' valuations to unicorn status if that helps attract stakeholders. Opportunities for manipulation are asymmetric, as firms can encourage manipulation benefiting them and discourage manipulation harming them by adjusting their corporate governance and transparency.

JEL Classification: D62, D82, D84, G30

Suggested Citation

Terovitis, Spyros and Vladimirov, Vladimir, How Financial Markets Create Superstars (December 2020). CEPR Discussion Paper No. DP15546, Available at SSRN: https://ssrn.com/abstract=3753946

Spyros Terovitis (Contact Author)

University of Amsterdam, Finance Group ( email )

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

Vladimir Vladimirov

University of Amsterdam Business School ( email )

Roetersstraat 18
Amsterdam, 1018WB
Netherlands

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Finance Theory Group (FTG) ( email )

United States

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