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 11, 2015


Abstract:     
We study how aversion to ambiguity about the predictability of future asset values and cash flows affects optimal portfolios and asset prices. We show that optimal portfolios do not always react to new information even though there are no information processing costs or other market frictions. Moreover, the equilibrium price of the market portfolio does not always incorporate all available public information that is worse than expected. This informational inefficiency leads to price underreaction consistent with momentum.

Number of Pages in PDF File: 56

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

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


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Date posted: June 16, 2012 ; Last revised: August 12, 2015

Suggested Citation

Condie, Scott and Ganguli, Jayant V. and Illeditsch, Philipp K., Information Inertia (August 11, 2015). 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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