Template-Type: ReDIF-Paper 1.0
Author-Name: Junghum Park
Author-X-Name-First: Junghum
Author-X-Name-Last: Park
Author-Workplace-Name: Lietuvos Bankas, Vilnius University
Author-Email: jpark@lb.lt 

Title: Feedback Effects, Market Valuations, and Real Efficiency
Abstract: This paper studies the interdependence of myopic corporate behavior and the so-called feedback effect, where financial prices contain useful information for corporate decision making. We model the feedback effect in a mostly standard trading environment, except that its tractable analysis is ensured by Pareto distribution of productivity. The analysis shows that the feedback effect causes a price inflation and the resulting long-term productive inefficiency, which can be understood in the context of innovation strategies. It sheds light on the negative side of learning from financial prices, and, at the same time, explains its prevalence, which requires the availability of superior information in financial markets.


Classification-JEL: D82, G01, G11, G14

Keywords: Feedback effect, learning, real efficiency, short-termism
Length: 30 pages
Number: 143
Note:
Creation-date: 2026-05-08
Price: Free
Publication-Status: 
File-URL: https://www.lb.lt/uploads/publications/docs/69971_2a48ca31d5a16e92e7bdba704e2c6edc.pdf
File-Format: Application/PDF
File-Function: Full text
Handle: RePEc:lie:wpaper:143