In a capitalist economy, prices serve to equilibrate supply and demand for goods and services, continually changing to reallocate resources to their most efficient uses. However, secondary stock market prices, often viewed as the most "informationally efficient" prices in the economy, have no direct role in the allocation of equity capital since managers have discretion in determining the level of investment. What is the link between stock price informational efficiency and economic efficiency? We present a model of the stock market in which: (i) managers have discretion in making investments and must be given the right incentives; and (ii) stock market traders may have important information that managers do not have about the value of prospective investment opportunities. In equilibrium, information in stock prices will guide investment decisions because managers will be compensated based on informative stock prices in the future. The stock market indirectly guides investment by transferring two kinds of information: information about investment opportunities and information about managers' past decisions. However, because this role is only indirect, the link between price efficiency and economic efficiency is tenuous. We show that stock price efficiency is not sufficient for economic efficiency by showing that the model may have another equilibrium in which prices are strong-form efficient, but investment decisions are suboptimal. We also suggest that stock market efficiency is not necessary for investment efficiency by considering a banking system that can serve as an alternative institution for the efficient allocation of investment resources.The Journal of Finance up, it is not obvious whether its access to equity capital will be altered. This is because stock prices differ from prices in the fish market and most other markets in two ways.First, in the case of the fishmonger, the consumer decides how much fish to buy. In contrast, decisions about the allocation of investment capital are generally delegated to managers with little or no ownership stake in the firm. Managers decide dividend policy, leverage, the timing of new issues of seasoned equity and other securities, and therefore they have discretion over the amount of funding available for investing in new assets. Although the equityholders supply the capital to the firm, they do not decide directly how much capital to supply: instead, the managers do. This is somewhat analogous to the fishmonger telling his customers how much fish to buy.The stock market price is a secondary market price: it values the entire firm rather than a marginal investment. The role played by the stock price is the same as in the fish market example only in the simple case where a newly organized firm issues equity for the first time to fund its investment. In this special case, there is no managerial discretion: if investors believe that the capital can be more efficiently deployed elsewhere, or if the expected returns on the project are insufficient to induce enough saving, ...
Abstract. Several studies have shown that there is considerable evidence that the Arctic sea-ice is thinning during the last decades. When combined with the observed rapid reduction of ice-covered area this leads to a decline in sea-ice volume. The only remote sensing technique capable of quantifying this ice volume decrease at global scale is satellite altimetry. In this context the CryoSat-2 satellite was launched in 2010 and is equipped with the Ku-band SAR radar altimeter SIRAL, which we use to derive sea-ice freeboard defined as the height of the ice surface above the local sea level. In the context of quantifying Arctic ice-volume decrease at global scale, the CryoSat-2 satellite was launched in 2010 and is equipped with the Ku-band SAR radar altimeter SIRAL, which we use to derive sea-ice freeboard defined as the height of the ice surface above the sea level. Accurate CryoSat-2 range measurements over open water and the ice surface in the order of centimeters are necessary to achieve the required accuracy of the freeboard to thickness conversion. Besides uncertainties of the actual sea-surface height and limited knowledge of ice and snow properties, the penetration of the radar signal into the snow cover and therefore the interpretation of radar echoes is crucial. This has consequences in the selection of retracker algorithms which are used to track the main scattering horizon and assign a range estimate to each CryoSat measurement. In this paper we apply a retracker algorithm with thresholds of 40%, 50% and 80% of the first maximum of radar echo power, spanning the range of values used in current literature. For the 40% threshold we assume that the main scattering horizon lies at a certain depth between the surface and snow-ice interface as verified through coincident CryoSat-2 and airborne laser altimetry measurements. This contrasts with the 50% and 80% thresholds where we assume the ice-snow interface as the main scattering horizon similar to other published studies. Using the selected retrackers we evaluate the uncertainties of trends in sea-ice freeboard and higher level products that arise from the choice of the retracker threshold only, independently from the uncertainties related to snow and ice properties. Our study shows that the choice of retracker thresholds does have a non-negligible impact on magnitude estimates of sea-ice freeboard, thickness and volume, but that the main trends in these parameters are less affected. Specifically we find declines of Arctic sea-ice volume of 9.7% (40% threshold), 10.9% (50% threshold) and 6.9% (80% threshold) between March 2011 and March 2013. In contrast to that we find increases in Arctic sea-ice volume of 27.88% (40% threshold), 25.71% (50% threshold) and 32.65% (80% threshold) between November 2011 and November 2013. Furthermore we obtain a significant increase of freeboard from March 2013 to November 2013 in the area for multi-seasonal sea-ice north of Greenland and the Canadian Archipelago. Since this is unlikely it gives rise to the assumption that applying different retracker thresholds depending on seasonal properties of the snow load is necessary in the future.
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