Feedback Effects, Asymmetric Trading, and the Limits to Arbitrage

• 成果类型: Article
• 署名作者: Edmans, Alex; Goldstein, Itay; Jiang, Wei
• 署名单位: University of London; London Business School; National Bureau of Economic Research; Center for Economic & Policy Research (CEPR); University of London; London Business School; University of Pennsylvania; Columbia University
• 刊物名称: AMERICAN ECONOMIC REVIEW
• ISSN/ISSBN: 0002-8282
• DOI: 10.1257/aer.20141271
• 发表日期: 2015
• 页码: 3766-3797
• 关键词: market; RISK; manipulation; prices; IMPACT

摘要

We analyze strategic speculators' incentives to trade on information in a model where firm value is endogenous to trading, due to feedback from the financial market to corporate decisions. Trading reveals private information to managers and improves their real decisions, enhancing fundamental value. This feedback effect has an asymmetric effect on trading behavior: it increases (reduces) the profitability of buying (selling) on good (bad) news. This gives rise to an endogenous limit to arbitrage, whereby investors may refrain from trading on negative information. Thus, bad news is incorporated more slowly into prices than good news, potentially leading to overinvestment.