|
THE FEEDBACK EFFECT An established view in economics is that financial markets are more than just a side show; they affect the real value of firms and securities. Several mechanisms can generate such a feedback effect from financial markets to the real economy. One prominent mechanism is based on information: the information reflected in asset prices influences decisions by various economic agents (managers, directors, providers of capital, regulators, etc.) that affect the value of firms. Most of my research in this area tries to explore the theoretical implications of the feedback effect. Essentially, in the presence of a feedback effect, the financial market affects and reflects the value of the firm at the same time. As it turns out, introducing this explicitly in a model generates new implications for both corporate finance and financial market variables. My empirical research in this area deals with documenting channels for the feedback effect and estimating systems where asset prices affect and reflect the value of securities at the same time. My papers that
fall into this broad research area include Market-Based Corrective
Actions with Philip Bond and Edward Simpson Prescott (Latest Version: July
2008) Takeover Activity and Target
Valuations: Feedback Loops in Financial Markets with Alex Edmans and Wei
Jiang (Latest Version: July 2008) Activist Arbitrage: A Study of
Open-Ending Attempts of Closed-End Funds with Michael Bradley, Learning and Complementarities:
Implications for Speculative Attacks with Incentives for Information
Production in Markets where Prices Affect Real Investment with James Dow
and Manipulation and the
Allocational Role of Prices with Price Informativeness and Investment Sensitivity to Stock Price with Qi Chen and Wei Jiang, Review of Financial Studies, vol. 20(3), pp. 619-650, May 2007 |