How Financial Markets Create Superstars

Vladimir Vladimirov and Spyros Terovitis

No 15546, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: High valuations reflect good growth prospects but can also improve these prospects by attracting key stakeholders, such as employees, business partners, or investors. We show that this feedback channel allows speculators without positive information about a firm to profit from inflating its stock price, thereby helping the firm to "fake it till it makes it." Reversing such feedback effects is hard even when traders have negative information. Likely targets are firms in "normal" (neither hot nor cold) markets, compensating stakeholders with performance pay or equity. Investors, such as VCs, can profit from inflating firms' valuations also in private markets.

Keywords: Speculation; Manipulation; Superstar firms; Unicorns; Market efficiency; Stakeholders; High-skilled employees; Misallocation of resources; transparency (search for similar items in EconPapers)
JEL-codes: D62 D82 D84 G30 (search for similar items in EconPapers)
Date: 2020-12
New Economics Papers: this item is included in nep-bec and nep-cwa
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://cepr.org/publications/DP15546 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:15546

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP15546

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().