Reference

Ulf Axelson (London School of Economics), “Informational Black Holes in Financial Markets”, Fédération des Banques Françaises Seminar, TSE, February 15, 2016, 12:30–14:00, room MF 323.

Abstract

We study how efficient primary financial markets are in allocating capital wheninformation about investment opportunities is dispersed across market participants.Paradoxically, the very fact that information is valuable for making real investmentdecisions destroys the efficiency of the market. To add to the paradox, as the numberof market participants with useful information increases a growing share of them fallinto an \informational black hole," making markets even less efficient. Contrary tothe predictions of standard theory, social surplus and the revenues of an entrepreneurseeking financing can be decreasing in the size of the financial market, the linkageprinciple of Milgrom and Weber (1982) may not hold, and collusion among investorsmay enhance efficiency.

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