The Cost of Information and Equilibrium in the Capital Asset Market

Joel Owen and Ramon Rabinovitch

Journal of Financial and Quantitative Analysis, 1980, vol. 15, issue 3, 497-508

Abstract: The value of information to the investor is best described by Samuelson [15] in his prologue to the theory of speculation: “…Suppose my reactions are not better than those of other speculators, but rather one second quicker… in a world of uncertainty, I note the consequences of each changing event one second faster than anyone else. I make my fortune not once, but every day that important events happen…” Furthermore, the role of heterogeneous expectations was emphasized by Hirshleifer [7]: “…Speculation…emerges not from differences in individual risk aversion, but rather solely from differences in individual belief as to what the future will reveal.” Thus, information which is always partial and different to different investors, in imperfect markets, is perfectly consistent with the existence of heterogeneity in investors' expectations.

Date: 1980
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