Illeditsch, PK and Ganguli, J and Condie, S (2015) Information Inertia. Working Paper. University of Essex, Department of Economics, Economics Discussion Papers. (Unpublished)
Illeditsch, PK and Ganguli, J and Condie, S (2015) Information Inertia. Working Paper. University of Essex, Department of Economics, Economics Discussion Papers. (Unpublished)
Illeditsch, PK and Ganguli, J and Condie, S (2015) Information Inertia. Working Paper. University of Essex, Department of Economics, Economics Discussion Papers. (Unpublished)
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: | Monograph (Working Paper) |
|---|---|
| Subjects: | H Social Sciences > HB Economic Theory |
| 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: | 11 Dec 2015 14:38 |
| Last Modified: | 23 Sep 2022 19:18 |
| URI: | http://repository.essex.ac.uk/id/eprint/15615 |
Available files
Filename: dp770.pdf