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Information Inertia

Ganguli, J and Condie, S and Illeditsch, PK (2012) Information Inertia. UNSPECIFIED. University of Essex, Department of Economics, Economics Discussion Papers.

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Abstract

We study how information about an asset affects optimal portfolios and equilibrium asset prices when investors are not sure about the model that predicts future asset values and thus treat the information as ambiguous. We show that this ambiguity leads to optimal portfolios that are insensitive to news even though there are no information processing costs or other market frictions. In equilibrium, we show that stock prices may not react to public information that is worse than expected and this mispricing of bad news leads to profitable trading strategies based on public information.

Item Type: Monograph (UNSPECIFIED)
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences > Economics, Department of
Depositing User: Jim Jamieson
Date Deposited: 14 Feb 2013 16:07
Last Modified: 10 Jan 2018 15:15
URI: http://repository.essex.ac.uk/id/eprint/5628

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