Information Choice, Uncertainty, and Expected Returns
Open Access
- Author:
- Gempesaw, David Conrad
- Graduate Program:
- Business Administration
- Degree:
- Doctor of Philosophy
- Document Type:
- Dissertation
- Date of Defense:
- February 27, 2019
- Committee Members:
- Quanwei Cao, Dissertation Advisor/Co-Advisor
Quanwei Cao, Committee Chair/Co-Chair
Stephen Lenkey, Committee Member
Jeremiah Green, Committee Member
Kai Du, Outside Member
Timothy T Simin, Dissertation Advisor/Co-Advisor
Timothy T Simin, Committee Chair/Co-Chair - Keywords:
- investor learning
information acquisition
expected returns
risk
learning index
information choice - Abstract:
- In this dissertation, I investigate the empirical relationship between investors' information choices and the cross-section of risk and return in the equity market. My analysis builds upon the rational expectations equilibrium model of information choice and investment choice developed by Van Nieuwerburgh and Veldkamp (2010). I estimate a variable from the model called the learning index that reflects the theoretical expected benefits of learning about an asset for a rational average investor. Using this measure as a proxy for information flow, I find that stocks with higher values of the learning index have lower expected returns and volatilities in the cross-section on average. I provide support for the interpretation of the learning index through analyses based on short run and long run patterns in returns and volatilities, other measures of information flow, the information environment surrounding earnings announcements, and measures of information processing costs. Taken together, my findings provide evidence in support of the model's predictions and illustrate a new approach to empirically measure investors' information choices and assess the effects of these choices.