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done better over the same period. This theory makes several distinctive predictions, which, for concreteness, we develop in … a stock-market setting. For example, starting with symmetric and homoskedastic fundamentals, the theory yields …
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When there is uncertainty about a CEO's quality, news about the firm causes rational investors to update their expectation of the firm's profitability for two reasons: Updates occur because of the direct effect of the news, and also because the news can cause an updated assessment of the CEO's...
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