Investor Information Choice with Macro and Micro Information
73 Pages Posted: 29 Jun 2016 Last revised: 28 Feb 2019
Date Written: February 25, 2019
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; Attention
JEL Classification: G1, G12, G14, G2, G23, G24
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