Three essays in financial market price informativeness

Abstract

The thesis studies the interaction between financial market and the real investment and their impacts on price informativeness. The first chapter provides theoretical and empirical evidences that private information conveyed through trading activities alleviate information asymmetry and facilitate equity financing. The second chapter studies an environment where the central bank learns the information about the economy fundamental from the financial security price before making monetary policy. The feedback effect from the financial market to the policy maker can impair the price informativeness by reducing the incentive for the speculators to coordinate and reveal their correlated information. The third chapter explores the interaction between financial markets and real economy of two regions whose investment increases each other’s productivity. The capital provider in each region learns from its own and the other region’s financial market in making their investment decisions. The coordination among capital providers amplifies the trading frenzies in each financial market.