Katrin Tinn

Man or Machine? Rational Trading without Information about Fundamentals

Systematic trading contingent on observed prices by agents uninformed about fundamentals has long been considered at odds with efficient markets populated by rational agents. In this paper we show that price-contingent trading is the equilibrium strategy of rational agents in efficient markets in which there is uncertainty about whether a large trader is informed. In this environment, knowing his own type and past trades (or lack of them) will be enough for a large trader to retrieve some private information about the fundamental indirectly even if he does not observe fundamental information directly. Such trader pursues price-contingent trading which remains profitable in a (semi-strong) efficient market. Our results generalize to a large variety of distributional assumptions. We then provide conditions under which price-contingent trading is positive-feedback or contrarian. On average both positive-feedback and contrarian trading help prices converge faster to fundamentals, although they can occasionally trigger divergence.

Holdup and Comparative Advantage

We consider a setting where fims need to make irreversible investments to exploit a countrys comparative advantage. Firms are then susceptible to ex-post rent extraction by a transit country or by other agents that are able to limit access to world markets. We develop a general equilibrium model where this potential holdup problem makes such countries poorer and less likely to invest in technology that generates their comparative advantage. The predictions of the model are examined using gravity equations and a new measure of distances that explicitly considers the location of the closest ports. The evidence is consistent with less trade by landlocked countries as a result of the holdup problem we examine.

Can overpricing of technology stocks be good for welfare? Positive spillovers vs. equity market losses

This paper examines the real impact of booms-and-busts of equity prices of technology-intensive firms, such as the late 1990s episode. We emphasize that what makes such episodes different from booms-and-busts related to other assets is the presence of knowledge spillovers. Such spillovers imply underinvestment in R&D at the aggregate level. Therefore, when temporarily high equity prices create incentives to invest more in R&D there are permanent wage and productivity gains. Sufficient conditions for these gains to always offset the direct negative effects from losses of equity trading and firm-level overinvestment are that overpricing is small and lasts longer.

Can Optimism about Technology Stocks be Good for Welfare? Positive Spillovers vs. Equity Market Losses

This paper analyzes the impact of equity market information imperfections on R&D driven growth. The mechanism proposed is built on two premises. First, the R&D-sector relies largely on equity finance, because of its production features. Second, equity can be persistently mispriced. This is due to investors rationally taking into account both private and public information. This paper shows that optimism in equity market can generate long-run consumption gains, despite the excess capital losses realized in the short-run. This result arises from the externalities in R&D production that result in uderinvestment in R&D in a market economy with perfect information.