Abstract*

We provide novel insights into how investors use information contained in interest rates to learn about economic fun-amentals and how this affects informational and allocative efficiency. Specifically, we develop a noisy rational expec-tations equilibrium model with an endogenous interest rate that investors use to update their beliefs. The model yields two key findings. First, the interest rate reveals primarily information about discount rates, allowing investors to extract more information about cashflows from stock prices. Second, the precision of the interest-rate signal and, hence, stock-price informativeness are positively correlated with the interest rate. We present evidence consistent with this prediction.

*Co-authored with Matthijs Breughem and Joel Peress

General information

This will be a hybrid seminar. If you are interested in joining this seminar, please send an email to the secretariat of the Finance Group at Amsterdam Business School at finsec-abs@uva.nl.