Institutional Investors and Information Acquisition: Implications for Asset Prices and Informational Efficiency

Matthijs Breugem and Adrian Buss

No 524, Carlo Alberto Notebooks from Collegio Carlo Alberto

Abstract: We jointly model the information choice and portfolio allocation problem of institutional investors who are concerned about their performance relative to a benchmark. Benchmarking increases an investor's e ective risk-aversion, which reduces his willingness to speculate and, consequently, his desire to acquire infor- mation. In equilibrium, an increase in the fraction of benchmarked institutional investors leads to a decline in price informativeness, which can cause a decline in the prices of all risky assets and the market portfolio. The decline in price informativeness also leads to a substantial increase in return volatilities and allows non-benchmarked investors to substantially outperformed benchmarked investors.

Keywords: benchmarking; institutional investors; asset pricing; asset alloca- tion; information acquisition; equilibrium; informational efficiency. (search for similar items in EconPapers)
JEL-codes: G11 G14 G23 (search for similar items in EconPapers)
Pages: pages 48
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:cca:wpaper:524

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