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Information in Financial Markets and Its Real Effects

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  • Itay Goldstein

Abstract

Financial markets have a central role in allocating resources in modern economies. One of the main functions of financial markets is the discovery of information. This information in turn helps guide decisions in the real side of the economy. The literature on the “feedback effect” of financial markets explores this channel. Empirical work tries to identify the informational feedback from markets to corporate decisions. Theoretical work explores implications that this feedback effect has for the equilibrium in financial markets and for economic efficiency. Current trends in information technology under the FinTech revolution change the nature of information processing in financial markets and so may change the nature of the feedback effect. In this article, I review the main themes of this developing literature and connect them to the current information revolution. I also discuss directions for future research.

Suggested Citation

  • Itay Goldstein, 2023. "Information in Financial Markets and Its Real Effects," Review of Finance, European Finance Association, vol. 27(1), pages 1-32.
    • Handle: RePEc:oup:revfin:v:27:y:2023:i:1:p:1-32.
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    3. Zhang, Teng & Xu, Zhiwei, 2023. "The informational feedback effect of stock prices on corporate investments: A comparison of new energy firms and traditional energy firms in China," Energy Economics, Elsevier, vol. 127(PA).

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    More about this item

    Keywords

    Financial markets; Corporate finance; Information; Feedback effect; Financial technology;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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