Stock Market Speculation and Managerial Myopia

Ingmar Nyman ()

No 402, Economics Working Paper Archive at Hunter College from Hunter College Department of Economics

Abstract: This paper extends the analysis of managerial share price concerns by allowing informed trading in the stock market. It is shown that because they decrease the manager's information advantage vis-à-vis the stock market, individual investors who trade on private information improve the efficiency of corporate investment. This improvement does, however, fall short of first-best efficiency. Moreover, a stronger managerial share-price concern increases the expected profit from informed trading. Hence, by encouraging individual investors to collect information about corporate decisions and trade on it, managerial myopia tends to automatically bring forth a partial solution to the problems that it causes.

Keywords: Managerial Myopia; Corporate Investment; Informed Trading; Stock Market Incentives (search for similar items in EconPapers)
JEL-codes: D21 D82 G31 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2004, Revised 2004
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Journal Article: Stock market speculation and managerial myopia (2005)
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