It is commonly believed that prices in secondary financial markets play an important allocational role because they contain information that facilitates the efficient allocation of resources. This paper identifies a limitation inherent in this role of prices. It shows that the presence of a...

In this paper we show that profitable market manipulation via trade is possible if prices perform an allocational role. If market prices affect the real value of an asset (e.g. because they contain information relevant to a firm's investment decisions), a potentially informed speculator may wish...

We study a model where a capital provider learns from the price of a firm’s security in deciding how much capital to provide for new investment. This feedback effect from the financial market to the investment decision gives rise to trading frenzies, where speculators all wish to trade like...

direction, so that they coordinate exactly when it is undesirable. We analyze the determinants of coordination among speculators and study policy measures that affect patterns of coordination to improve price informativeness and investment efficiency.

FDI investors control the management of the firms, whereas FPI investors delegate decisions to managers. Therefore, direct investors are more informed than portfolio investors about the prospects of projects. This information enables them to manage their projects more efficiently. However, if...

This paper develops a model of a self-fulfilling credit market freeze and uses it to study alternative governmental responses to such a crisis. We study an economy in which operating firms are interdependent, with their success depending on the ability of other operating firms to obtain...

We study a model where the aggregate trading of currency speculators reveals new information to the central bank and affects its policy decision. We show that the learning process gives rise to coordination motives among speculators leading to large currency attacks and introducing...

We study a model in which a capital provider learns from the price of a firm's security in deciding how much capital to provide for new investment. This feedback effect from the financial market to the investment decision gives rise to trading frenzies, in which speculators all wish to trade...

It is commonly believed that prices in secondary financial markets play an important allocational role because they contain information that facilitates the efficient allocation of resources. This paper identifies a limitation inherent in this role of prices. It shows that the presence of a...

We provide evidence that firms attempting IPOs condition offer terms and the decision whether to carry through with an offering on the experience of their primary market contemporaries. Moreover, while initial returns and IPO volume are positively correlated in the aggregate, the correlation is...