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The Informativeness of Stock Prices, Misallocation and Aggregate Productivity

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  • Vaidyanathan Venkateswaran

    (Pennsylvania State University)

  • Hugo A. Hopenhayn

    (UCLA)

  • Joel David

    (USC)

Abstract

Capital markets function as aggregators of private information and in an environment with imperfectly informed firms, guide investment and production decisions. We study the implications of poorly functioning capital markets for the misallocation of factors of production across heterogeneous firms. Our theoretical framework combines a noisy rational expectations model of asset markets with a standard model of production by heterogeneous firms. We use a model calibrated to cross-country stock market and firm-level data to investigate the extent to which differences in capital market conditions can explain TFP differences across countries.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2013 Meeting Papers with number 455.

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Date of creation: 2013
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Handle: RePEc:red:sed013:455

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  1. Chang-Tai Hsieh & Peter J Klenow, 2008. "Misallocation and Manufacturing TFP in China and India," 2008 Meeting Papers 121, Society for Economic Dynamics.
  2. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-50, September.
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