Optimal research in financial markets with heterogeneous private information: a rational expectations model

This paper investigates prices and endogenous research decision for financial assets. In rational expectations models with public information, higher order beliefs make investors to overweight the public information relative to underlying fundamentals. The extent of this mispricing is higher if the variance of private signals is relatively high. The model presented in this paper extends this setting by incorporating the research cost decision and endogenising the variance of the private signals that short-lived investors obtain in each period. It turns out that investors will be less willing to research in periods when there is an alternative asset with high return available. Furthermore, the optimal research decision will depend on the time left to the maturity of the asset. This explains, in a rational setting, why long lived assets like stocks may be priced based on the public information rather than research on fundamentals. JEL Classification: G12, G14Financial markets imperfections, heterogeneous information, research costs

Financial markets' imperfections and technology adoption

This thesis examines information imperfections in asset markets and its impact on economic performance through technology adoption and innovation. In a rational setting, where equity market participants take into account common public information in addition to their private signals about fundamentals, equity prices are persistently biased towards the public signals. Chapter 2 investigates the real effect of such mis-pricing, when R&D producing firms rely on equity finance. Relating to the recent technology stocks boom, the model shows how market's optimism causes more innovations. Furthermore, such optimism can generate gains in aggregate consumption. Chapter 3 analyzes equity markets' role in facilitating ownership transfer from entrepreneurs investing in adopting technology to managers running these firms once technology is adopted. Information imperfections in equity market affect entrepreneurs' willingness to invest in frontier technology in two ways. First, uncertainty about equity price or lack of market liquidity discourages technology adoption. This can explain slow technology adoption and limited venture capitalists' participation in under-developed equity markets. Second, imperfectly informed market participants take fast adoption as a positive signal. The resulting increase of expected market value encourages technology adoption. Probability of fast technology adoption is highest at an intermediate number of informed investors. Chapter 4 looks more closely into the extent of asset mis-pricing by endogenizing the variance of investors' private signals. Better quality of freely available public information reduces incentives to invest in private information and can magnify the extent of asset mis-pricing. Furthermore, in a dynamic setting, investors' react more slowly on changes of the fundamentals because incentives to invest in research are low in early trading periods. The chapter also shows that availability of longer price history might not bring asset prices closer to the fundamentals, as investors choose to free-ride on other investors' research efforts

Estonian Naturalists' Society

Estonian Naturalists’ Societ

Asterozoan pedicellariae and ossicles revealed from the Middle Ordovician of Baltica

Tinn, O. and Ainsaar, L. 2014. Asterozoan pedicellariae and ossicles revealed from the Middle Ordovician of Baltica

A study of the electroless plating of Sn onto a die-cast aluminum alloy

A tin layer was immersion plated onto a zinc-silicon containing aluminum alloy by using a potassium stannate solution. Conventional aluminum pretreatment was used before immersion plating. Effects of immersion time with immersion tin thickness and Al-Sn adhesion were studied. Conditions of subsequent Sn-Pb electroplating on Sn plated aluminum samples were investigated. SEM (scanning electron microscope) and x-ray energy dispersion studies were extensively used on samples of each stage --Abstract, page ii

Estonian Naturalists' Society

Estonian Naturalists' Society

Estonian Naturalists’ Society

Estonian Naturalists’ Societ

Can overpricing of technology stocks be good for welfare? Positive spillovers vs. equity market losses

This paper examines the real impact of booms-and-busts of equity prices of technology-intensive firms, such as the late 1990s episode. We emphasize that what makes such episodes different from booms-and-busts related to other assets is the presence of knowledge spillovers. Such spillovers imply underinvestment in R&D at the aggregate level. Therefore, when temporarily high equity prices create incentives to invest more in R&D there are permanent wage and productivity gains. Sufficient conditions for these gains to always offset the direct negative effects from losses of equity trading and firm-level overinvestment are that overpricing is small and lasts longer