Date/Time Date(s) - 07/10/20241:30 pm - 2:30 pm
Gorkem Bostanci, Assistant Professor of Economics at the University of British Columbia, will present to our economics graduate students and faculty on Monday, October 7th, 1:30pm-2:30pm (EST) in LRW 1003. Please note the unusual space and time.
Gorkem’s feilds of research cover macroeconomics, firm dynamics, labor economics, and economics of information. He will present the paper, “Business, Liquidity, and Information Cycles” with Guillermo Ordonez.
Abstract
Stock markets play a dual role: improve capital allocation across firms by conveying information about their fundamentals and provide liquidity to traders by quickly turning stocks into cash. We propose a trading model in which these two roles are endogenously related: if stocks are used more intensively for liquidity, then prices reveal less information. We structurally estimate stock price informativeness for several countries. We show that it declines when alternative liquidity sources, such as the banking system, are in distress. To study the real effect of this mechanism, we devise a strategy to integrate our trading module into a dynamic general equilibrium model with heterogeneous firms. We calibrate the model to the US and show that in recessions, prices are more informative and allocation improves, but only if alternative sources of liquidity function normally. Otherwise, traders rely more on stock markets for liquidity, prices become less informative, allocation deteriorates, and the output loss is 43% larger.
View Gorkem’s professional website.