Financial reporting and market efficiency with extrapolative investors

Bianchi, Milo and Jehiel, Philippe (2015) Financial reporting and market efficiency with extrapolative investors. Journal of Economic Theory, 157. pp. 842-878.

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Official URL: http://tse-fr.eu/pub/29073

Abstract

We model a financial market in which companies engage in strategic financial reporting knowing that investors only pay attention to a randomly drawn sample from firms' reports and extrapolate from this sample. We investigate the extent to which stock prices differ from the fundamental values, assuming that companies must report all their activities but are otherwise free to disaggregate their reports as they wish. We show that no matter how large the samples considered by investors are, a monopolist can induce a price of its stock bounded away from the fundamental. Besides, increasing the number of companies competing to attract investors may exacerbate the mispricing of stocks.

Item Type: Article
Language: English
Date: May 2015
Refereed: Yes
Uncontrolled Keywords: Extrapolation, efficient market hypothesis, competition, sophistication, financial reporting
JEL codes: C72 - Noncooperative Games
G14 - Information and Market Efficiency; Event Studies
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSM Research (Toulouse), TSE-R (Toulouse)
Site: UT1
Date Deposited: 16 Mar 2015 14:56
Last Modified: 07 Mar 2018 13:23
OAI ID: oai:tse-fr.eu:29073
URI: http://publications.ut-capitole.fr/id/eprint/16706

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