Citation

Discussion Paper Details

Please find the details for DP144 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Market Size, the Informational Content of Stock Prices and Risk: A Multiasset Model and some Evidence

Author(s): Marco Pagano

Publication Date: December 1986

Keyword(s): Financial Markets, Information, Italy, Market Thinness, Risk, Stock Market and Stock Prices

Programme Area(s): Applied Macroeconomics and International Macroeconomics

Abstract: Market thinness can be an important determinant of the riskiness of stock returns, because it reduces the reliability of stock prices as predictors of future dividends. This paper analyses the relationship between market size and risk as the outcome of rational expectations equilibrium in a multiasset model with transaction costs, and shows that: (i) the conditional and measured variance of stock returns should be higher for thin issues ceteris paribus, and (ii) this thinness-variability relationship should arise only from the unsystematic component of the variance. These predictions are tested on data from the Milan Stock Exchange and appear to be supported by the evidence.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=144

Bibliographic Reference

Pagano, M. 1986. 'Market Size, the Informational Content of Stock Prices and Risk: A Multiasset Model and some Evidence'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=144