Institutional Investors and Information Acquisition: Implications for Asset Prices and Informational Efficiency
Year: 2018
Type: article
Abstract: We study the joint portfolio and information choice problem of institutional investors who are concerned about their performance relative to a benchmark. Benchmarking influences information choices through two distinct economic mechanisms. First, benchmarking reduces the number of shares in investors’ portfolios that are sensitive to information. Hence, the value of private information declines. Second, benchmarking limits investors’ willingness to speculate. This not only reduces the value of private information but also adversely affects information aggregation. In equilibrium, investors acquire less information and informational efficiency declines. As a result, return volatility increases, and less-benchmarked institutional investors outperform more-benchmarked ones. Received May 31, 2017; editorial decision July 4, 2018 by Editor Stijn Van Nieuwerburgh. Authors have furnished supplementary code, which is available on the Oxford University Press Web site next to the link to the final published paper online.
Source: Review of Financial Studies
DOI: 10.1093/rfs/hhy103
Authors: Matthijs Breugem, Adrian Buss
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: hybrid
Estimated APC paid: $4,028
OpenAlex ID: W2584601941