Illeditsch, Philipp K and Ganguli, Jayant and Condie, Scott (2021) Information Inertia. The Journal of Finance, 76 (1). pp. 443-479. DOI https://doi.org/10.1111/jofi.12979
Illeditsch, Philipp K and Ganguli, Jayant and Condie, Scott (2021) Information Inertia. The Journal of Finance, 76 (1). pp. 443-479. DOI https://doi.org/10.1111/jofi.12979
Illeditsch, Philipp K and Ganguli, Jayant and Condie, Scott (2021) Information Inertia. The Journal of Finance, 76 (1). pp. 443-479. DOI https://doi.org/10.1111/jofi.12979
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 Faculty of Social Sciences > Economics, Department of |
| SWORD Depositor: | Unnamed user with email elements@essex.ac.uk |
| Depositing User: | Unnamed user with email elements@essex.ac.uk |
| Date Deposited: | 24 Sep 2019 14:35 |
| Last Modified: | 04 Oct 2022 01:00 |
| URI: | http://repository.essex.ac.uk/id/eprint/25431 |
Available files
Filename: Ganguli-InfromationInertia-JFaccepted.pdf