Abstract: Short-termism need not breed informational price inefficiency even when generating Beauty Contests. We demonstrate this claim in a two-period market with persistent liquidity trading and risk-averse, privately informed, short-term investors and find that prices reflect average expectations about fundamentals and liquidity trading. Informed investors engage in “retrospective” learning to reassess inferences (about fundamentals) made during the trading game’s early stages. This behavior introduces strategic complementarities in the use of information and can yield two stable equilibria that can be ranked in terms of liquidity, volatility, and informational efficiency. We derive implications that explain market anomalies as well as empirical regularities.
Bio: Xavier Vives is professor of Economics and Finance, Abertis Chair of Regulation, Competition and Public Policy, and academic director of the Public-Private Research Center at IESE Business School. He holds a Ph.D. in Economics from UC Berkeley.
He is Research Fellow of CESifo and was member of its European Economic Advisory Group from 2001 to 2011. Research Fellow of the Center for Economic Policy Research, where he served as Director of the Industrial Organization Program in 1991-1997. Fellow of the Econometric Society since 1992 and elected member of its Council in 2006-2008; of the European Economic Association since 2004 and elected member of its Council 1991-1995. He is a member of the Advisory Board for Economic Recovery of the Government of Catalonia, and in 2011-2014 he was Special Advisor to the Vice president of the European Commission and Commissioner for Competition, Mr Joaquín Almunia. He is member of the Academia Europaea since 2012.
His fields of interest are industrial organization and regulation, the economics of information, and banking and financial economics. He has published in the main international journals and is the author of several books. Editor of main international academic journals, he is currently co-editor of the Journal of Economics and Management Strategy and editor of the Journal of Economic Theory.
Dr. Vives has been an advisor and consultant on competition, regulation, and corporate governance issues for the World Bank, the Inter-American Development Bank, the European Commission, the Federal Reserve Bank of New York, as well as for major international corporations.
For more information about the speaker please visit his web site
The full seminar list can be found on the Department of Finance seminar web page