search query: @author Dow, J. / total: 6
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| Author: | Dow, J. Gorton, G. |
| Title: | Stock market efficiency and economic efficiency: Is there a connection? |
| Journal: | Journal of Finance
1997 : JUL, VOL. 52:3, p. 1087-1129 |
| Index terms: | EFFICIENCY STOCK MARKETS ECONOMIC EFFICIENCY |
| Language: | eng |
| Abstract: | In a capitalist society prices for service and goods play the central role in resource allocation. The strength of capitalism lies in its ability to make the prices reflect essential information so that resources are effectively deployed. Consumers care only about the level of the price without needing to think about how it is determined. Stock prices are different because financial securities are characterized by a pure common values model. Agents care only about the amount of cash a security will generate in the future and so they want to know as much as possible about other agents' estimates of future cash flows. The investment decision of the manager requires making inferences from stock prices. Because the role of stock prices in the allocation of resources is indirect, the link between economic and price efficiency is tenuous. |
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