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http://ssrn.com/abstract=120611
 
 

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How does Information Quality Affect Stock Returns?


Pietro Veronesi


University of Chicago - Booth School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

April 1999

CRSP Working Paper No. 462

Abstract:     
Using a simple dynamic asset pricing model, this paper investigates the relationship between the precision of public information about economic growth and stock market returns. After characterizing expected returns and conditional volatility in terms of a single quantity that depends on investors' uncertainty, I also show that (i) higher precision of signals tends to increase the equity risk premium; (ii) if signals are imprecise, there is an upper bound to the equity premium independently of investors' risk aversion and (iii) return volatility is U-shaped with respect to investors' risk aversion; (iv) a higher precision of signals makes (ii) and (iii) less important.

Number of Pages in PDF File: 44

JEL Classification: G0

working papers series


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Date posted: September 11, 1998  

Suggested Citation

Veronesi, Pietro, How does Information Quality Affect Stock Returns? (April 1999). CRSP Working Paper No. 462. Available at SSRN: http://ssrn.com/abstract=120611 or http://dx.doi.org/10.2139/ssrn.120611

Contact Information

Pietro Veronesi (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-6348 (Phone)
773-702-0458 (Fax)
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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