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Financial trading versus entrepreneurship: Competition for talent and negative feedback effects

Arnold, Lutz G. ; Zelzner, Sebastian


Higher market efficiency due to informed financial trading is typically considered to have positive feedback effects on the real economy. We extend the seminal Grossman-Stiglitz (1980) model to highlight an im-portant negative feedback effect from trading to entrepreneurial activity: information revelation via prices leads to a clustering of risk at entrepreneurs. This distorts agents' ...


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