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Learning From Stock Prices and Economic Growth

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  • Peress, Joël

Abstract

A competitive stock market is embedded into a neoclassical growth economy to analyze the interplay between the acquisition of information about firms, its partial revelation through stock prices, capital allocation and income. The stock market allows investors to share their costly private signals in a cost-effective incentive-compatible way. It contributes to economic growth by raising total factor productivity, but its impact is only transitory. Several predictions on the evolution of real and financial variables are derived, including capital efficiency, total factor productivity, industrial specialization, wealth inequality, stock trading intensity, liquidity and return volatility.

Suggested Citation

  • Peress, Joël, 2011. "Learning From Stock Prices and Economic Growth," CEPR Discussion Papers 8569, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:8569
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    References listed on IDEAS

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    1. Sebnem Kalemli-Ozcan & Bent E. Sørensen & Oved Yosha, 2003. "Risk Sharing and Industrial Specialization: Regional and International Evidence," American Economic Review, American Economic Association, vol. 93(3), pages 903-918, June.
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    More about this item

    Keywords

    asymmetric information; capital allocation; financial development; growth; learning; noisy rational expectations equilibrium; stock market;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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