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Book/Printed Material Wall street and silicon valley a delicate interaction

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Title

  • Wall street and silicon valley a delicate interaction

Summary

  • "Financial markets look at data on aggregate investment for clues about underlying profitability. At the same time, firms' investment depends on expected equity prices. This generates a two-way feedback between financial market prices and investment. In this paper we study the positive and normative implications of this interaction during episodes of intense technological change, when information about new investment opportunities is highly dispersed. Because high aggregate investment is "good news" for profitability, asset prices increase with aggregate investment. Because firms' incentives to invest in turn increase with asset prices, an endogenous complementarity emerges in investment decisions -- a complementarity that is due purely to informational reasons. We show that this complementarity dampens the impact of fundamentals (shifts in underlying profitability) and amplifies the impact of noise (correlated errors in individual assessments of profitability). We next show that these effects are symptoms of inefficiency: equilibrium investment reacts too little to fundamentals and too much to noise. We finally discuss policies that improve efficiency without requiring any informational advantage on the government's side"--National Bureau of Economic Research web site.

Names

  • Angeletos, Marios
  • Lorenzoni, Guido
  • Pavan, Alessandro
  • National Bureau of Economic Research

Created / Published

  • Cambridge, MA : National Bureau of Economic Research, c2007.

Notes

  • -  Title from PDF file as viewed on 10/12/2007.
  • -  Includes bibliographical references.
  • -  Also available in print.
  • -  Mode of access: World Wide Web.
  • -  System requirements: Adobe Acrobat Reader.

Call Number/Physical Location

  • HB1

Digital Id

Library of Congress Control Number

  • 2007616606

Access Advisory

  • Unrestricted online access

Online Format

  • image
  • pdf

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Cite This Item

Citations are generated automatically from bibliographic data as a convenience, and may not be complete or accurate.

Chicago citation style:

Angeletos, Marios, Guido Lorenzoni, Alessandro Pavan, and National Bureau Of Economic Research. Wall Street and Silicon Valley a Delicate Interaction. Cambridge, MA: National Bureau of Economic Research, 2007. Pdf. https://aj.sunback.homes/item/2007616606/.

APA citation style:

Angeletos, M., Lorenzoni, G., Pavan, A. & National Bureau Of Economic Research. (2007) Wall Street and Silicon Valley a Delicate Interaction. Cambridge, MA: National Bureau of Economic Research. [Pdf] Retrieved from the Library of Congress, https://aj.sunback.homes/item/2007616606/.

MLA citation style:

Angeletos, Marios, et al. Wall Street and Silicon Valley a Delicate Interaction. Cambridge, MA: National Bureau of Economic Research, 2007. Pdf. Retrieved from the Library of Congress, <aj.sunback.homes/item/2007616606/>.