Feedback Effects and Asset Prices

摘要

We allow for endogenous cash flows in an asset pricing model with heterogeneously informed and uninformed investors to provide new insights about the properties of asset prices. In our model, cash flows depend on the informed investors' aggregate invest- ments. This generates a feedback e.ect from asset price to asset value. The feedback e.ect creates incentives for informed investors to strategically coordinate their invest- ments. In this setting, the asset price is an endogenous public signal which aggregates private signals. From the asset price, informed and uninformed investors infer both the fundamental value and the likelihood of coordination. The latter inference height- ens the information effect, introducing a coordination component. At the same time, coordinated investments are costly, generating a countervailing substitution effect. By analyzing the interaction between these two effects, we find feedback may lead to mul- tiple equilibrium prices and is a significant source of excess volatility. We establish explicit conditions for price multiplicity and generate comparative static results that deliver several unique testable hypotheses regarding how feedback effects relate to the cross-sectional stock return volatility.