Have Financial Markets Become More Informative? / Jennie Bai, Thomas Philippon, Alexi Savov.

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Bai, Jennie

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w19728.Publication details: Cambridge, Mass. National Bureau of Economic Research 2013.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: The finance industry has grown, financial markets have become more liquid, information technology has undergone a revolution. But have market prices become more informative? We derive a welfare-based measure of price informativeness: the predicted variation of future cash flows from current market prices. Since 1960, price informativeness has increased at longer horizons (three to five years). The increase is concentrated among firms with greater institutional ownership and share turnover, firms with traded options, and growth firms. Prices have also become a stronger predictor of investment and investment a stronger predictor of cash flows. These results suggest increased revelatory price efficiency.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w19728 (Browse shelf(Opens below))	Not For Loan

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December 2013.

The finance industry has grown, financial markets have become more liquid, information technology has undergone a revolution. But have market prices become more informative? We derive a welfare-based measure of price informativeness: the predicted variation of future cash flows from current market prices. Since 1960, price informativeness has increased at longer horizons (three to five years). The increase is concentrated among firms with greater institutional ownership and share turnover, firms with traded options, and growth firms. Prices have also become a stronger predictor of investment and investment a stronger predictor of cash flows. These results suggest increased revelatory price efficiency.