Product Market Competition, Insider Trading, and Stock Market Efficiency
Year: 2010
Type: article
Abstract: ABSTRACT How does competition in firms' product markets influence their behavior in equity markets? Do product market imperfections spread to equity markets? We examine these questions in a noisy rational expectations model in which firms operate under monopolistic competition while their shares trade in perfectly competitive markets. Firms use their monopoly power to pass on shocks to customers, thereby insulating their profits. This encourages stock trading, expedites the capitalization of private information into stock prices and improves the allocation of capital. Several implications are derived and tested.
Source: The Journal of Finance
Author: JOEL PERESS
Institutions: INSEAD, Princeton University, INSEAD, INSEAD, New York University
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2134884530