Discussion Paper Details

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Title: Learning From Stock Prices and Economic Growth

Author(s): JoŽl Peress

Publication Date: September 2011

Keyword(s): asymmetric information, capital allocation, financial development, growth, learning, noisy rational expectations equilibrium and stock market

Programme Area(s): Financial Economics and International Macroeconomics

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.

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Bibliographic Reference

Peress, J. 2011. 'Learning From Stock Prices and Economic Growth'. London, Centre for Economic Policy Research.