We study the interplay of share prices and firm decisions when share prices aggregate and convey noisy information about fundamentals to investors and managers. First, we show that the informational feedback between the firm's share price and its investment decisions leads to a systematic...

We propose a theory of asset prices that emphasizes heterogeneous information as the main element determining prices of different securities. Our main analytical innovation is in formulating a model of noisy information aggregation through asset prices, which is parsimonious and tractable, yet...

We study the interplay of share prices and firm decisions when share prices aggregate and convey noisy information about fundamentals to investors and managers. First, we show that the informational feedback between the firm's share price and its investment decisions leads to a systematic...

We study noisy aggregation of dispersed information in financial markets without imposing parametric restrictions on preferences, information, and return distributions. We provide a general characterization of asset returns by means of a risk-neutral probability measure that features excess...

We develop a dynamic nonlinear, noisy REE model of credit risk pricing un- der dispersed information that can theoretically and quantitatively account for the credit spread puzzle. The first contribution is a sharp analytical characteri- zation of the dynamic REE equilibrium and its comparative...

We analyze investment incentives and risk-taking by firms when equity markets aggregate information with noise. Noisy information aggregation drives a wedge between the expected social value and the market value of investments, inducing inefficient rent-seeking by incumbent shareholders and...

We propose a theory of asset prices that emphasizes heterogeneous information as the main element determining prices of different securities. With only minimal restrictions on security payoffs and trader preferences, noisy aggregation of heterogeneous information drives a systematic wedge...

This paper studies an environment in which information aggregation interacts with investment decisions. The first contribution of the paper is to develop a tractable model of such interactions. The second contribution is to solve the model in closed form and derive a series of implications that...

With only minimal restrictions on security payoffs and trader preferences, noisy aggregation of heterogeneous information drives a systematic wedge between the impact of fundamentals on the price of a security, and the corresponding impact on cash flow expectations. From an ex ante perspective,...