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Wall Street and Silicon Valley: A Delicate Interaction

Author

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  • George-Marios Angeletos
  • Guido Lorenzoni
  • Alessandro Pavan

Abstract

Entrepreneurs and venture capitalists are concerned about investors’ beliefs in asset markets because these beliefs shape the value of a potential IPO and the possibility to expand. Investors’ beliefs, on the other hand, can be influenced by start-up activity insofar as the latter contains valuable information about eventual profitability. This two-way feedback is shown to generate excessive, non-fundamental, waves in start-up activity, IPOs, and asset prices. Policies that “lean against the wind” can improve welfare, without requiring an informational advantage by the government.

Suggested Citation

  • George-Marios Angeletos & Guido Lorenzoni & Alessandro Pavan, 2023. "Wall Street and Silicon Valley: A Delicate Interaction," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 90(3), pages 1041-1083.
    • Handle: RePEc:oup:restud:v:90:y:2023:i:3:p:1041-1083.
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    File URL: http://hdl.handle.net/10.1093/restud/rdac043
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. “Wall Street and Silicon Valley: A Delicate Interaction,” G.-M. Angeletos, G. Lorenzoni & A. Pavan (2012)
      by afinetheorem in A Fine Theorem on 2014-03-06 17:22:41

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    Cited by:

    1. George-Marios Angeletos & Alessandro Pavan, 2009. "Policy with Dispersed Information," Journal of the European Economic Association, MIT Press, vol. 7(1), pages 11-60, March.
    2. Péter Kondor, 2009. "The more we know, the less we agree: Higher-order expectations and public announcements," 2009 Meeting Papers 1018, Society for Economic Dynamics.
    3. Gabriel Desgranges & Celine Rochon, 2008. "Conformism, Public News and Market Effciency," OFRC Working Papers Series 2008fe16, Oxford Financial Research Centre.
    4. George-Marios Angeletos & Guido Lorenzoni & Alessandro Pavan, 2010. "Beauty Contests and Irrational Exuberance: A Neoclassical Approach," NBER Working Papers 15883, National Bureau of Economic Research, Inc.
    5. Kathy Yuan & Emre Ozdenoren & Itay Goldstein, 2008. "Learning and Complementarities: Implications for Speculative Attacks," 2008 Meeting Papers 276, Society for Economic Dynamics.
    6. Tarek A. Hassan & Thomas M. Mertens, 2017. "The Social Cost of Near-Rational Investment," American Economic Review, American Economic Association, vol. 107(4), pages 1059-1103, April.
    7. Kondor, Péter, 2011. "The more we know on the fundamental, the less we agree on the price," CEPR Discussion Papers 8455, C.E.P.R. Discussion Papers.
    8. Goldstein, Itay & Ozdenoren, Emre & Yuan, Kathy, 2013. "Trading frenzies and their impact on real investment," Journal of Financial Economics, Elsevier, vol. 109(2), pages 566-582.
    9. Ted Temzelides & Cyril Monnet & Marie Hoerova, 2008. "Public Information and Monetary Policy," 2008 Meeting Papers 5, Society for Economic Dynamics.
    10. Shapiro, Dmitry & Shi, Xianwen & Zillante, Artie, 2014. "Level-k reasoning in a generalized beauty contest," Games and Economic Behavior, Elsevier, vol. 86(C), pages 308-329.
    11. Dmitry Shapiro & Xianwen Shi & Artie Zillante, 2009. "Robustness of Level-k Reasoning in Generalized Beauty Contest Games," Working Papers tecipa-380, University of Toronto, Department of Economics.
    12. Gabriel Desgranges & Céline Rochon, 2013. "Conformism and public news," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 52(3), pages 1061-1090, April.
    13. Tarek A. Hassan & Thomas M. Mertens, 2015. "Information Aggregation in a Dynamic Stochastic General Equilibrium Model," NBER Macroeconomics Annual, University of Chicago Press, vol. 29(1), pages 159-207.
    14. Angeletos, George-Marios & La’O, Jennifer, 2009. "Incomplete information, higher-order beliefs and price inertia," Journal of Monetary Economics, Elsevier, vol. 56(S), pages 19-37.
    15. Guido Lorenzoni & George-Marios Angeletos, 2010. "Price Making Intermediation," 2010 Meeting Papers 963, Society for Economic Dynamics.
    16. Kevin J. Lansing, 2008. "Speculative growth and overreaction to technology shocks," Working Paper Series 2008-08, Federal Reserve Bank of San Francisco.

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    More about this item

    Keywords

    Beauty contests; IPO waves; Hot IPO effects; Mis-pricing; Heterogeneous beliefs; Information-driven complementarities; Volatility; Inefficiency;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • G1 - Financial Economics - - General Financial Markets
    • G3 - Financial Economics - - Corporate Finance and Governance

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