Page info: *Author:Mathiesen, H. *Document version:2.5. *Copyright 1997-2017, ViamInvest.Legal notice. 



 

Exhibition: Why too dispersed ownership increases stock price fluctuations

 

Introduction: This exhibition presumes understanding of concepts from the exhibition: Why the equilibrium stock price is fluctuating. The point of this exhibition is to argue that the degree of ownership concentration may influence the level of equilibrium fluctuations. In particular, high levels of stock price fluctuations could be caused by high ownership dispersion because small owners will need more incentives in terms of higher fluctuations in order to cover their expenses to gather and analyze information about fundamental value. Normally, this would not be a problem because the highly informed investors would also be the large investors. However, legislation or clauses in the corporate charter may prevent individual ownership from exceeding a certain limit and it is this situation that the right side of the exhibition describes. The problem is important because higher fluctuations mean less efficient allocation of resources and more instability in society. It is also important to see that the argument cannot be reversed i.e. saying that a few large owners causes less fluctuations because large owners are more able to cover their information costs. This situation is not comparable because a stock market with only a few large owners is totally illiquid. In such a 'market' any trade will be a bargain with other informed parties. This situation compares more to private ownership, see exhibition: Private or public - The effect on enterprise valuation.

 

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-Copyright 1997-2017, ViamInvest. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.Legal notice.