BIBFRAME Work

Title

Feedback effects and the limits to arbitrage

Type

• Text
• Monograph

Contribution

• National Bureau of Economic Research (contributor)
• Goldstein, Itay (contributor)
• Edmans, Alex (aut)
• Jiang, Wei (contributor)

Language

• eng

Classification

LCC: HB1 (Assigner: dlc) (Status: used by assigner)

Content

• text

Supplementary content

• bibliography

Summary

"This paper identifies a limit to arbitrage that arises from the fact that a firm's fundamental value is endogenous to the act of exploiting the arbitrage. Trading on private information reveals this information to managers and helps them improve their real decisions, in turn enhancing fundamental value. While this increases the profitability of a long position, it reduces the profitability of a short position -- selling on negative information reveals that firm prospects are poor, causing the manager to cancel investment. Optimal abandonment increases firm value and may cause the speculator to realize a loss on her initial sale. Thus, investors may strategically refrain from trading on negative information, and so bad news is incorporated more slowly into prices than good news. The effect has potentially important real consequences -- if negative information is not incorporated into stock prices, negative-NPV projects may not be abandoned, leading to overinvestment"--National Bureau of Economic Research web site.

Authorized Access Point

Edmans, Alex. Feedback effects and the limits to arbitrage

Admin Metadata

• Date: 2026-09-30T17:47:59.757791+00:00
• Agent: cbc
• Status: c
• Derived from: 17118967

Admin Metadata

• Date: 2026-09-30
• Cataloger id: Unknown
• Description level: http://id.loc.gov/ontologies/bibframe-2-6-0/
• Description language: eng
• Description authentication: pcc