Affiliation:
1. MIT and NBER
2. Northwestern University and NBER
3. Northwestern University and CEPR
Abstract
Abstract
Entrepreneurs and venture capitalists are concerned about investors’ beliefs in asset markets because these beliefs shape the value of a potential IPO and the possibility to expand. Investors’ beliefs, on the other hand, can be influenced by start-up activity insofar as the latter contains valuable information about eventual profitability. This two-way feedback is shown to generate excessive, non-fundamental, waves in start-up activity, IPOs, and asset prices. Policies that “lean against the wind” can improve welfare, without requiring an informational advantage by the government.
Publisher
Oxford University Press (OUP)
Subject
Economics and Econometrics
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