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

52 Pages Posted: 24 May 2018

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: April 2018

Abstract

We study the joint portfolio and information choice problem of institutional investors who are concerned about their performance relative to a benchmark. Benchmarking influences information choices through two distinct economic mechanisms. First, benchmarking reduces the number of shares in investors' portfolios that are sensitive to private information. Second, benchmarking limits investors' willingness to speculate. Both effects imply a decline in the value of private information. Hence, in equilibrium, investors acquire less information and informational efficiency declines. As a result, return volatility increases and benchmarking can cause a decline in equilibrium stock prices. Moreover, less-benchmarked institutional investors outperform more-benchmarked ones.

Keywords: asset allocation, Asset Pricing, benchmarking, Informational efficiency, institutional investors

JEL Classification: G11, G14, G23

Suggested Citation

Breugem, Matthijs and Buss, Adrian, Institutional Investors and Information Acquisition: Implications for Asset Prices and Informational Efficiency (April 2018). CEPR Discussion Paper No. DP12900. Available at SSRN: https://ssrn.com/abstract=3184205

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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