Have Financial Markets Become More Informative?
نویسندگان
چکیده
The finance industry has grown, financial markets have become more liquid, and information technology allows arbitrageurs to trade faster than ever. But have market prices then become more informative? We construct a model with information acquisition and investment to link financial development, price informativeness, and allocational efficiency. We then use market prices to construct the model-implied informativeness measure, essentially the predictable component of future earnings based on market prices, going back to 1960. We find that informativeness has increased at long horizons (three to five years) and is unchanged at shorter horizons. The long-horizon increase is strongest among retail and services firms, among growth firms, and among firms with option listings. JEL Classification: E2, G1, N2
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