Intertemporal Information Acquisition and Investment Dynamics
65 Pages Posted: 2 Apr 2015
Date Written: February 1, 2015
Abstract
This paper studies intertemporal information acquisition by agents that are rational Bayesian learners and that dynamically optimize over consumption, investment in capital, and investment in information. The model predicts that investors acquire more information in times when future capital productivity is expected to be high, the cost of capital is low, new technologies are expected to have a persistent impact on productivity, and the scalability of investments is expected to be high. My results shed light on the economic mechanisms behind various dynamic aspects of information production by the financial sector, such as the sources of variation in returns on information acquisition for investment banks or private equity funds.
Keywords: Dynamic Information Acquisition, Investment, Asset Markets, Bayesian Learning
JEL Classification: C61, D83, D91, D92, G24
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