Work

Ambiguity, Information Quality, and Asset Pricing

Year: 2008

Type: article

Abstract: ABSTRACT When ambiguity‐averse investors process news of uncertain quality, they act as if they take a worst‐case assessment of quality. As a result, they react more strongly to bad news than to good news. They also dislike assets for which information quality is poor, especially when the underlying fundamentals are volatile. These effects induce ambiguity premia that depend on idiosyncratic risk in fundamentals as well as skewness in returns. Moreover, shocks to information quality can have persistent negative effects on prices even if fundamentals do not change.

Source: The Journal of Finance

DOI: 10.1111/j.1540-6261.2008.01314.x

Authors: LARRY G. EPSTEIN, MARTIN SCHNEIDER

Institutions: University of Rochester, New York University, Boston University, Federal Reserve, Federal Reserve Bank of Minneapolis

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: bronze

OpenAlex ID: W2119094949

FWCI: 56.51

Cites: 45

Cited by: 825

Related to: 10