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Strategic information aggregation and learning from prices

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  • Pedraza, Alvaro

Abstract

This paper studies firms' learning from stock prices and corporate investment when managers have different precisions about their investment opportunities. When informed traders and firm managers are strategic, private information is not fully incorporated into stock prices. Moreover, informed trading volume is low for firms with low quality of managerial information, leading to limited learning. Using a sample of U.S. publicly traded companies, the paper documents a positive correlation between the quality of managerial information and price informativeness. Furthermore, consistent with model predictions, the relation between managerial information and investment sensitivity to prices follows an inverse U-shape pattern.

Suggested Citation

  • Pedraza, Alvaro, 2019. "Strategic information aggregation and learning from prices," Journal of Corporate Finance, Elsevier, vol. 58(C), pages 208-225.
    • Handle: RePEc:eee:corfin:v:58:y:2019:i:c:p:208-225
    DOI: 10.1016/j.jcorpfin.2019.05.002
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    References listed on IDEAS

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    Cited by:

    1. Afanador,Juan Pablo & Davis,Richard Mark & Pedraza Morales,Alvaro Enrique, 2021. "Estimating the Gains from International Diversification : The Case of Pension Funds," Policy Research Working Paper Series 9635, The World Bank.

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    More about this item

    Keywords

    Corporate investment; Informed trading; Strategic interactions;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory

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