Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/32031 
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dc.contributor.authorBlonski, Matthiasen
dc.contributor.authorvon Lilienfeld-Toal, Ulfen
dc.date.accessioned2008-12-17-
dc.date.accessioned2010-05-14T11:54:59Z-
dc.date.available2010-05-14T11:54:59Z-
dc.date.issued2008-
dc.identifier.urihttp://hdl.handle.net/10419/32031-
dc.description.abstractSuppose the value of a firm is endogenously determined by a manager's costly effort. We call this manager a distinguished player if he also can trade shares of the firm on a market. Arbitrage-free asset pricing theory suggests that the equilibrium market price reflects the value increasing contribution of a distinguished player. Trade at this price, however, cannot be an equilibrium of a market game since due to private effort costs, shares have a lower value to the distinguished player as compared to other investors. Why? The distinguished player himself can gain by selling at this price and in turn reduce effort. By merging asset pricing and corporate finance concepts we solve this distinguished player paradox and show how this asymmetry in valuations can systematically bring about a trade price strictly below the equilibrium value of the company. This implies that buyers enjoy excess returns on their investment and is thereby at odds with the efficient markets hypothesis. It further involves a substantial reinterpretation of traditional no-arbitrage towards a game-theoretic understanding. The empirical prediction that companies with a distinguished player yield excess-returns was confirmed for the sample of S&P500 firms and S&P1500 firms in a companion paper by von Lilienfeld-Toal and R¨unzi (2007). Our results are shown to be robust with respect to trading rules, discrete versus continuous effort, trading costs, noise traders, and price taking behavior.en
dc.language.isoengen
dc.publisher|aUniversity of Göttingen, Center for European, Governance and Economic Development Research (cege) |cGöttingenen
dc.relation.ispartofseries|acege Discussion Papers |x78en
dc.subject.jelG12en
dc.subject.jelG32en
dc.subject.jelC72en
dc.subject.jelD43en
dc.subject.jelD46en
dc.subject.ddc330en
dc.subject.keywordexcess returnsen
dc.subject.keywordunderpricingen
dc.subject.keywordno-arbitrageen
dc.subject.keywordasset pricingen
dc.subject.keywordcorporate financeen
dc.titleExcess returns and the distinguished player paradox-
dc.type|aWorking Paperen
dc.identifier.ppn585597952en
dc.rightshttp://www.econstor.eu/dspace/Nutzungsbedingungenen
dc.identifier.repecRePEc:zbw:cegedp:78en

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