Jaromir Nosal (Boston College)
30 October 2019 @ 12:00 - 13:15
- Past event
“Market Power and Price Informativeness”
Abstract: The asset ownership structure in financial markets worldwide has changed significantly over the last few decades. Institutional investors own a larger fraction of assets, the distribution of their ownership is more concentrated, and the ownership by passive investors is getting increasingly more important. To study implications of these facts, we develop a general equilibrium portfolio-choice model with endogenous information acquisition and market power. We show that the size and concentration of institutional investors have opposite effects on price informativeness. Further, the introduction of passive investors has a negative effect on price informativeness, both through quantities and through changes in active investors’ learning. Finally, we show that predictions of the model with endogenous information acquisition are significantly different from those implied by models with exogenous information, such as Kyle (1985).