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Information Inertia

Illeditsch, Philipp K and Ganguli, Jayant and Condie, Scott (2019) 'Information Inertia.' (conitionally accepted) Journal of Finance. ISSN 0022-1082 (In Press)

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Abstract

We show that aversion to risk and ambiguity leads to information inertia when investors process public news about assets. Optimal portfolios do not always depend on news that is worse than expected; hence, the equilibrium stock price does not reflect this bad 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 news momentum (e.g. after earnings announcements) and is consistent with low trading activity of households. An ambiguity premium helps explain the macro and earnings announcement premium.

Item Type: Article
Uncontrolled Keywords: Ambiguity Aversion, Knightian Uncertainty, Inattention to News, Informational Efficiency, Information Inertia, News Momentum, Post-Earnings Announcement Drift (PEAD), Post-Forecast Revision Drift (PFRD)
Divisions: Faculty of Social Sciences > Economics, Department of
Depositing User: Elements
Date Deposited: 24 Sep 2019 14:35
Last Modified: 01 Nov 2019 17:15
URI: http://repository.essex.ac.uk/id/eprint/25431

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