57 Pages Posted: 29 Jun 2016 Last revised: 30 Mar 2017
Date Written: March 29, 2017
We propose a tractable, multi-security model in which investors choose to acquire information about macro or micro fundamentals or remain uninformed. The model is solvable in closed form and yields a rich set of empirical predictions. Primary among these is an endogenous bias toward micro efficiency. A positive fraction of agents will always choose to be micro informed, but in some cases no agent will choose to be macro informed. Furthermore, for most reasonable choices of parameter values, prices will be more informative about micro than macro fundamentals. The key friction in our model is the assumption that uninformed investors cannot make costless inferences from individual stock prices. We explore the model's implications for the cyclicality of investor information choices, for systematic and idiosyncratic return volatility, and for excess covariance and volatility.
Keywords: Asset Management; Investment; Information; Asset Pricing; Volatility; Attention
JEL Classification: G1, G12, G14, G2, G23, G24
Suggested Citation: Suggested Citation
Glasserman, Paul and Mamaysky, Harry, Market Efficiency with Micro and Macro Information (March 29, 2017). 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