Asset pricing with an imprecise information set

Gady Jacoby, Gemma Lee, Alexander Paseka and Yan Wang

Pacific-Basin Finance Journal, 2019, vol. 53, issue C, 82-93

Abstract: We provide a novel theoretical platform for pricing imprecise accounting information through a separate market risk premium, three distinct information-quality betas, and a risk premium associated with portfolios that hedge against imprecise-information risk for individual assets over time. The first information-quality beta is related to the covariance between market-wide imprecise-information return error and security precise return. The second beta represents commonality in information quality, which is priced by investors seeking to curtail adverse effects of imprecise information on their portfolio value. The third beta implies that investors prefer stocks issued by firms that tend to, erroneously or deliberately, release false positive information about the firm when the market is bearish.

Keywords: Asset pricing; Accounting information risk (search for similar items in EconPapers)
JEL-codes: G12 G14 M41 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:53:y:2019:i:c:p:82-93

DOI: 10.1016/j.pacfin.2018.10.001

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