Have Financial Markets Become More Informative?
The finance industry has grown, financial markets have become more liquid, information technology has undergone a revolution. But have market prices become more informative? We derive a welfare-based measure of price informativeness: the predicted variation of future cash flows from current market prices. Since 1960, price informativeness has increased at longer horizons (three to five years). The increase is concentrated among firms with greater institutional ownership and share turnover, firms with traded options, and growth firms. Prices have also become a stronger predictor of investment and investment a stronger predictor of cash flows. These results suggest increased revelatory price efficiency.
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Copy CitationJennie Bai, Thomas Philippon, and Alexi Savov, "Have Financial Markets Become More Informative?," NBER Working Paper 19728 (2013), https://doi.org/10.3386/w19728.Download Citation
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Published Versions
Bai, Jennie & Philippon, Thomas & Savov, Alexi, 2016. "Have financial markets become more informative?," Journal of Financial Economics, Elsevier, vol. 122(3), pages 625-654. citation courtesy of 
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