Information Choice, Uncertainty, and Expected Returns
Review of Financial Studies, forthcoming
80 Pages Posted: 10 Aug 2019 Last revised: 10 Dec 2020
Date Written: October 1, 2020
We investigate how information choices impact equity returns and risk. Building on an existing theoretical model of information and investment choice, we estimate a learning index that reflects the expected benefits of learning about an asset. High learning index stocks have lower future returns and risk compared to low learning index stocks. Analysis of a conditional asset pricing model, long run patterns in returns and volatilities, other measures of information flow, and the information environment surrounding earnings announcements reinforce our interpretation of the learning index. Our findings support the model's predictions and illustrate a novel empirical measure of investor learning.
Keywords: Information Choice, Learning, Expected Returns, Cross-Section of Stock Returns, Volatility, Risk, Uncertainty
JEL Classification: G11, G12, G14
Suggested Citation: Suggested Citation