The Source of Information in Prices and Investment-Price Sensitivity

@article{Edmans2016TheSO,
  title={The Source of Information in Prices and Investment-Price Sensitivity},
  author={Alex Edmans and S. Jayaraman and Jan Schneemeier},
  journal={Corporate Governance & Finance eJournal},
  year={2016}
}
This paper shows that real decisions depend not only on the total amount of information in prices, but the source of this information—a manager learns from prices when they contain information not possessed by him. We use the staggered enforcement of insider trading laws across 27 countries as a shock to the source of information that leaves total information unchanged: enforcement reduces (increases) managers’ (outsiders’) contribution to the stock price. Consistent with the predictions of our… Expand
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