Costly Information Acquisition and Investment Decisions: Quasi-Experimental Evidence

59 Pages Posted: 25 Mar 2019 Last revised: 6 Dec 2020

See all articles by David Xiaoyu Xu

David Xiaoyu Xu

University of Texas at Austin; University of Texas at Austin - Department of Finance

Date Written: July 1, 2019

Abstract

Despite a vast theoretical literature that builds on costly information acquisition, there is no direct evidence on the importance of information costs in investors’ private information choices. Using a large sample of Chinese mutual fund managers’ visits to firm headquarters and exploiting the introduction of high-speed railway as a quasi-natural experiment, I find substantial and quick responses to exogenous cost shocks: A one-standard-deviation travel time reduction increases site visits by 28% of the average frequency and semiannual stock trading profits by CNY 1.4 million at the fund family—firm pair level. These findings demonstrate investors’ elasticity to information costs.

Keywords: Information Acquisition, Information Costs, Site Visits, Trading Profits.

JEL Classification: G11, G14, G23, D82, D83

Suggested Citation

Xu, David and Xu, David, Costly Information Acquisition and Investment Decisions: Quasi-Experimental Evidence (July 1, 2019). Available at SSRN: https://ssrn.com/abstract=3353987 or http://dx.doi.org/10.2139/ssrn.3353987

David Xu (Contact Author)

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States

University of Texas at Austin ( email )

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