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How does Information Quality Affect Stock Returns?

44 Pages Posted: 11 Sep 1998  

Pietro Veronesi

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

Multiple version iconThere are 2 versions of this paper

Date Written: April 1999

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.

JEL Classification: G0

Suggested Citation

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

Pietro Veronesi (Contact Author)

University of Chicago - Booth School of Business ( email )

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Centre for Economic Policy Research (CEPR)

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National Bureau of Economic Research (NBER)

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