Have Financial Markets Become More Informative?

Jennie Bai (), Thomas Philippon () and Alexi Savov

No 19728, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The finance industry has grown, financial markets have become more liquid, information technology has undergone a revolution. But have market prices become more informative? We derive a welfare-based measure of price informativeness: the predicted variation of future cash flows from current market prices. Since 1960, price informativeness has increased at longer horizons (three to five years). The increase is concentrated among firms with greater institutional ownership and share turnover, firms with traded options, and growth firms. Prices have also become a stronger predictor of investment and investment a stronger predictor of cash flows. These results suggest increased revelatory price efficiency.

JEL-codes: E2 G1 N2 (search for similar items in EconPapers)
Date: 2013-12
New Economics Papers: this item is included in nep-fmk, nep-for and nep-mac
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Citations: View citations in EconPapers (38)

Published as Bai, Jennie & Philippon, Thomas & Savov, Alexi, 2016. "Have financial markets become more informative?," Journal of Financial Economics, Elsevier, vol. 122(3), pages 625-654.

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Related works:
Journal Article: Have financial markets become more informative? (2016)
Working Paper: Have financial markets become more informative? (2012)
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