Milo Bianchi, and Philippe Jehiel, Financial reporting and market efficiency with extrapolative investors, Journal of Economic Theory, vol. 157, May 2015, pp. 842–878.


We model a financial market in which companies engage in strategic financial reporting knowing that investors only pay attention to a randomly drawn sample from firms' reports and extrapolate from this sample. We investigate the extent to which stock prices differ from the fundamental values, assuming that companies must report all their activities but are otherwise free to disaggregate their reports as they wish. We show that no matter how large the samples considered by investors are, a monopolist can induce a price of its stock bounded away from the fundamental. Besides, increasing the number of companies competing to attract investors may exacerbate the mispricing of stocks.


Extrapolation; efficient market hypothesis; competition; sophistication; financial reporting;

JEL codes

  • C72: Noncooperative Games
  • G14: Information and Market Efficiency • Event Studies • Insider Trading

Research partnership

Scor Chair

Research theme

Regulation, Liquidity and Solvency Risks