Working Paper: CEPR ID: DP8569
Authors: Jol Peress
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: Asymmetric Information; Capital Allocation; Financial Development; Growth; Learning; Noisy Rational Expectations Equilibrium; Stock Market
JEL Codes: G11; G14; O16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Stock market (G10) | Capital allocation (G31) |
| Capital allocation (G31) | Total Factor Productivity (TFP) (D24) |
| Stock market (G10) | Total Factor Productivity (TFP) (D24) |
| Stock market (G10) | Income dynamics (D31) |
| Stock market (G10) | Economic growth (O49) |
| Information precision (D83) | Wealth inequality (D31) |
| Income levels (D31) | Information acquisition behaviors (D83) |