Investor Information Choice with Macro and Micro Information
57 Pages Posted: 29 Jun 2016 Last revised: 29 Apr 2021
Date Written: April 28, 2021
We develop a model of information and portfolio choice in which ex ante identical investors choose to specialize because of fixed attention costs required in learning about securities. Without this friction, investors would invest in all securities and would be indifferent across a wide range of information choices. When securities' dividends depend on an aggregate (macro) risk factor and an idiosyncratic (micro) shocks, fixed attention costs lead investors to specialize in either macro or micro information. With calibrated parameters, our results favor Samuelson's dictum that markets are more micro than macro efficient. We derive testable predictions from our model and find empirical support for them in specialization by U.S. equity mutual funds.
Keywords: Asset Management; Investment; Information; Asset Pricing; Attention; Mutual Funds
JEL Classification: G12; G14; G23
Suggested Citation: Suggested Citation