Demand for Information and Asset Pricing

41 Pages Posted: 27 Mar 2017

See all articles by Azi Ben-Rephael

Azi Ben-Rephael

Rutgers University, Newark, School of Business-Newark, Department of Finance & Economics

Bruce I. Carlin

University of California, Los Angeles (UCLA) - Anderson School of Management

Zhi Da

University of Notre Dame - Mendoza College of Business

Ryan D. Israelsen

Michigan State University - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: March 2017

Abstract

Previously, academics have used the supply of information that arrives to market (e.g., macroeconomic announcements, earnings reports, or news releases) to study how information affects asset prices and anomalies, and for tests of market efficiency. In this paper, we instead use measures of institutional and retail demand for information. We show that institutional demand for information is associated with increased trading volume and significant price movements. Average returns and betas are higher on days with higher institutional demand for information. The magnitude of these effects is much larger than those associated with the supply of news. However, the impact of demand for information from retail investors, while statistically significant, is quite small in magnitude. We also show that higher institutional demand alleviates mispricing in the market. In particular, higher information processing by institutional investors dampens momentum and enhances long-term reversals. As such, when demand for information increases, the market becomes more efficient.

Suggested Citation

Ben-Rephael, Azi and Carlin, Bruce I. and Da, Zhi and Israelsen, Ryan D., Demand for Information and Asset Pricing (March 2017). NBER Working Paper No. w23274. Available at SSRN: https://ssrn.com/abstract=2941252

Azi Ben-Rephael (Contact Author)

Rutgers University, Newark, School of Business-Newark, Department of Finance & Economics ( email )

111 Washington Avenue
Newark, NJ 07102
United States

HOME PAGE: http://sites.google.com/site/abenreph

Bruce I. Carlin

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Zhi Da

University of Notre Dame - Mendoza College of Business ( email )

Notre Dame, IN 46556-5646
United States

Ryan D. Israelsen

Michigan State University - Department of Finance ( email )

315 Eppley Center
East Lansing, MI 48824-1122
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
37
Abstract Views
479
PlumX Metrics