Advanced Search
MyIDEAS: Login to save this paper or follow this series

Information and Capital Markets

Contents:

Author Info

  • Joseph E. Stiglitz

Abstract

This paper provides the foundations of a general theory of information and the capital market. We show that in a pure gambling market, even with asymmetric information, there cannot exist an equilibrium with trade with rational individuals. We argue that although a pure exchange stock market is not a pure gambling market, most of the trade on the stock market arises from irrationality on the part of some investors and the rational response on the part of other investors to take advantage of that irrationality. We show that the private returns to information acquisition and dissemination differ markedly from social returns and as a result the market equilibrium is not a (constrained) Pareto optimum. Moreover, we show how firms' actions, e.g. the fraction of shares retained by the original entrepreneurs, the debt equity ratio, and the level of investment, may convey information about firm characteristics. This in turn affects the behavior of firms. As a result, the original owners of firms will be incompletely diversified, firms will not take actions which maximize their stock market value, and, in particular, they may behave in a risk averse manner, paying attention to own risk (which traditional theory suggests that the only risk firms should care about is the correlation with the market).

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nber.org/papers/w0678.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0678.

as in new window
Length:
Date of creation: May 1981
Date of revision:
Publication status: published as Stiglitz, Joseph E. "Information and Capital Markets." In Financial Economics: Essays in Honor of Paul Cootner, ed. W.F. Sharpe and C.M. Cootner, pp. 118-158. New Jersey: Prentice-Hall, 1982.
Handle: RePEc:nbr:nberwo:0678

Note: ME
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Joseph E. Stiglitz, 1986. "The General Theory of Tax Avoidance," NBER Working Papers 1868, National Bureau of Economic Research, Inc.
  2. Hellmann, Thomas & Stiglitz, Joseph, 2000. "Credit and equity rationing in markets with adverse selection," European Economic Review, Elsevier, Elsevier, vol. 44(2), pages 281-304, February.
  3. Swinnen, Johan F. M. & Gow, Hamish R., 1999. "Agricultural credit problems and policies during the transition to a market economy in Central and Eastern Europe," Food Policy, Elsevier, Elsevier, vol. 24(1), pages 21-47, February.
  4. Pardy, Robert, 1992. "Institutional reform in emerging securities markets," Policy Research Working Paper Series 907, The World Bank.
  5. Felipe Zurita, 2004. "Essays on Speculation," Levine's Working Paper Archive 618897000000000849, David K. Levine.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:0678. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.