Learning From Stock Prices and Economic Growth

Joel Peress

No 8569, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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.

Keywords: Growth; Financial development; stock market; Capital allocation; Learning; Asymmetric information; Noisy rational expectations equilibrium (search for similar items in EconPapers)
JEL-codes: G11 G14 O16 (search for similar items in EconPapers)
Date: 2011-09
New Economics Papers: this item is included in nep-cta and nep-fdg
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Journal Article: Learning from Stock Prices and Economic Growth (2014)
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