Investor Information Choice with Macro and Micro Information

71 Pages Posted: 29 Jun 2016 Last revised: 4 Sep 2018

Paul Glasserman

Columbia Business School

Harry Mamaysky

Columbia University - Columbia Business School

Date Written: August 1, 2018

Abstract

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. Our results favor Samuelson's dictum, that markets are more micro efficient than macro efficient. We calibrate the model to market data and show that it can reproduce important features of the widely studied decomposition of variability in stock returns into cash flow variance and discount rate variance.

Keywords: Asset Management; Investment; Information; Asset Pricing; Volatility; Attention

JEL Classification: G1, G12, G14, G2, G23, G24

Suggested Citation

Glasserman, Paul and Mamaysky, Harry, Investor Information Choice with Macro and Micro Information (August 1, 2018). Columbia Business School Research Paper No. 16-45. Available at SSRN: https://ssrn.com/abstract=2801700 or http://dx.doi.org/10.2139/ssrn.2801700

Paul Glasserman

Columbia Business School ( email )

3022 Broadway
403 Uris Hall
New York, NY 10027
United States
212-854-4102 (Phone)
212-316-9180 (Fax)

Harry Mamaysky (Contact Author)

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

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