In this paper, using firm-level data from CRSP, we document empirically that stock prices can simultaneously display “microefficiency” and “macroinefficiency;” an idea accredited to Paul Samuelson. To investigate the source of our empirical findings, we propose a theory of aggregation bias based on incomplete information and segmented markets.
In this paper, we show that dynamic models with dispersed information can be equivalently represented as models with hierarchical information. The result is useful because models with hierarchical information are easier to solve analytically.
In this paper, we establish and characterize a novel propagation mechanism under rational expectations, which we term confounding dynamics, that is responsible for the persistence of imperfect information across economic agents over time on relevant economic variables even when equilibrium variables are observed.