Institutional Investors and Information Acquisition: Implications for Asset Prices and Informational Efficiency

49 Pages Posted: 10 Jul 2017

See all articles by Matthijs Breugem

Matthijs Breugem

University of Turin - Collegio Carlo Alberto

Adrian Buss

INSEAD - Finance; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: June 2017

Abstract

We jointly model the information choice and portfolio allocation problem of institutional investors who are concerned about their performance relative to a benchmark. Benchmarking increases an investor's effective risk-aversion, which reduces his willingness to speculate and, consequently, his desire to acquire information. In equilibrium, an increase in the fraction of benchmarked institutional investors leads to a decline in price informativeness, which can cause a decline in the prices of all risky assets and the market portfolio. The decline in price informativeness also leads to a substantial increase in return volatilities and allows non-benchmarked investors to substantially outperformed benchmarked investors.

Suggested Citation

Breugem, Matthijs and Buss, Adrian, Institutional Investors and Information Acquisition: Implications for Asset Prices and Informational Efficiency (June 2017). NBER Working Paper No. w23561. Available at SSRN: https://ssrn.com/abstract=2999540

Matthijs Breugem (Contact Author)

University of Turin - Collegio Carlo Alberto ( email )

via Real Collegio 30
Moncalieri, Torino 10024
Italy

Adrian Buss

INSEAD - Finance ( email )

Boulevard de Constance
Fontainebleau Cedex, 77305
France
+33 160 72 44 84 (Phone)
+33 160 72 40 45 (Fax)

HOME PAGE: http://sites.google.com/view/abuss

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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