Professor of Finance
Winner of 2012 Best published paper Award Institut Louis-Bachelier and Institut Europlace
Winner of the Smith Breeden Prize (Distinguished Paper) for the best paper published in the Journal of Finance in 2010
Markets; Monopolistic Competition; Stocks - Prices; Rational Expectations (Economic theory); Securities Markets; Competition; Monopolies; Stocks; Stocks - Rate of Return; Capital; Economic Models; Market Places
How does competition in firms' product markets influence their behavior in equity markets? Do product market imperfections spread to equity markets?The authors 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 prices and improves the allocation of capital. Several implications are derived and tested.