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Information Inertia (Working Paper)

Illeditsch, PK and Ganguli, J and Condie, S (2017) Information Inertia (Working Paper). University of Essex, Department of Economics, Economics Discussion Papers. (Unpublished)

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Abstract

We show that aversion to risk and ambiguity leads to information inertia when investors process public news about future asset values. Optimal portfolios do not always depend on news that is worse than expected; hence, the equilibrium stock price does not reflect this news. This informational inefficiency is more severe when there is more risk and ambiguity, but disappears when investors are risk neutral or the news is about idiosyncratic risk. Information inertia leads to time-series momentum and is consistent with low trading activity of households. An ex-ante ambiguity premium helps explain the macro and earnings announcement premium.

Item Type: Other
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences > Economics, Department of
Depositing User: Jim Jamieson
Date Deposited: 11 Dec 2015 14:38
Last Modified: 31 Jan 2018 15:15
URI: http://repository.essex.ac.uk/id/eprint/15615

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