Document Type

Article

Publication Date

2004

Disciplines

Business Organizations Law | Law | Securities Law

Abstract

This Article concerns how to measure share price accuracy. It is prompted by the fact that many scholars believe that the prices established in the stock market affect the efficiency of the real economy. In their view, more accurate prices increase the amount of value added by capital-utilizing enterprises as these enterprises use society's scarce resources for the production of goods and services. More accurate share prices help improve both the quality of choice among new proposed investment projects in the economy and the operation of existing real assets currently in corporate hands.

The proposition that more accurate share prices improve the efficiency of the real economy implies that promoting share price accuracy is a worthy goal of public policy. It would therefore be helpful to be able to measure whether the policies adopted in fact accomplish this aim. A wide variety of policy measures are implicated here. Does issuer disclosure increase share price accuracy? What is the effect of various restrictions on insider trading and tipping? What is the effect of selective disclosure by issuers to institutional investors or analysts? Should analysts be regulated in some fashion? All of these questions are subjects of unresolved theoretical debates. Good empirical input could be of great value.

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