Investor Information Choice with Macro and Micro Information
53 Pages Posted: 29 Jun 2016 Last revised: 2 Feb 2018
Date Written: February 2, 2018
We study information and portfolio choices in a market of securities whose dividends depend on an aggregate (macro) risk factor and idiosyncratic (micro) shocks. Investors can acquire information about dividends at a cost. We first establish a general result showing that investors endogeneously choose to specialize in either macro or micro information. We then develop a specific model with this specialization and study the equilibrium mix of macro-informed and micro-informed investors and the informativeness of macro and micro prices. We discuss empirical implications for excess volatility, excess covariance, and security prices in recessions. Our results favor Samuelson's dictum, that markets are more micro efficient than macro efficient.
Keywords: Asset Management; Investment; Information; Asset Pricing; Volatility; Attention
JEL Classification: G1, G12, G14, G2, G23, G24
Suggested Citation: Suggested Citation