Abstract

http://ssrn.com/abstract=2084683
 
 

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Information Inertia


Scott Condie


Brigham Young University - Department of Economics

Jayant V. Ganguli


University of Essex - Department of Economics

Philipp K. Illeditsch


University of Pennsylvania - Finance Department

August 8, 2012


Abstract:     
We study how information about an asset affects optimal portfolios and equilibrium asset prices when investors are not sure about the model that predicts future asset values and thus treat the information as ambiguous. We show that this ambiguity leads to optimal portfolios that are insensitive to news even though there are no information processing costs or other market frictions. In equilibrium, we show that stock prices may not react to public information that is worse than expected and this mispricing of bad news leads to profitable trading strategies based on public information.

Number of Pages in PDF File: 42

Keywords: Ambiguity Aversion, Knightian Uncertainty, Informational Efficiency, Information Inertia, Inattention to News, Public Information, Momentum, Predictability.

JEL Classification: D80, D81, G10, G11, G12

working papers series


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Date posted: June 16, 2012 ; Last revised: August 10, 2012

Suggested Citation

Condie, Scott and Ganguli, Jayant V. and Illeditsch, Philipp K., Information Inertia (August 8, 2012). Available at SSRN: http://ssrn.com/abstract=2084683 or http://dx.doi.org/10.2139/ssrn.2084683

Contact Information

Scott Condie
Brigham Young University - Department of Economics ( email )
130 Faculty Office Bldg.
Provo, UT 84602-2363
United States
Jayant V. Ganguli
University of Essex - Department of Economics ( email )
Wivenhoe Park
Colchester CO4 3SQ
United Kingdom
Philipp K. Illeditsch (Contact Author)
University of Pennsylvania - Finance Department ( email )
The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States
215-898-3477 (Phone)

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