Seminar Series

2024 - 2025

Speaker: Christian Hellwig (TSE).

Title: “The Inefficient Market Hypothesis: Casino Capitalism and Prudential Regulation ”.

Date: Thursday, 5 December at 12h30 (Paris Time).

Abstract:  I study investment dynamics in an economy in which financial markets are not fully efficient, due to noisy information aggregation and limits to arbitrage. Inefficient financial markets lead to corporate short-termism, according to which shareholders focus on maximizing short-term financial market returns at the expense of future firm fundamentals. Corporate investment decisions are then driven by short-term rent-seeking motives and thus dynamically inconsistent, resulting in Pareto inferior outcomes in which all generations would stand to gain if they could jointly commit to fully internalize the impact of their investment decisions on the firms' expected future cash flows. These inefficiencies vanish only if financial markets become efficient, and - importantly - even small market imperfections can translate into large investment distortions. Prudential regulation that aligns a firm's investment decisions with its long-term fundamentals is welfare improving both at the micro level, i.e. by aligning shareholders inter-temporally on a common objective and reducing dynamic inconsistency, and at the macro level, by internalizing pecuniary externalities that corporate short-termism imposes on aggregate stock market valuations. Such regulatory interventions may even collectively benefit the shareholders whose behavior is reigned in as the loss of shareholder rents is more than offset by the indirect gains from restoring dynamically consistent investment behavior and higher aggregate stock market valuations. 

Here is a link to the speaker’s and the FEELab website:

https://www.tse-fr.eu/fr/people/christian-hellwig

https://sites.google.com/view/feelabtbs/

You are cordially invited to participate in the following seminar of the FEELab, which will take place in Room 321, Lascrosses building.

For more information, please contact: Pierre Mella-Barral p.mella-barral@tbs-education.fr