Information Choice, Uncertainty, and Expected Returns

A noisy rational expectations equilibrium for multi-asset securities markets

Charles Cao, David Gempesaw and Timothy T Simin

The Review of Financial Studies, 2021, vol. 34, issue 12, 5977-6031

Abstract: We investigate how information choices affect equity returns and risk. Building on an existing theoretical model of information and investment choice, we estimate a learning index that reflects the expected benefits of learning about an asset. High learning index stocks have lower future returns and risk compared to low learning index stocks. Analysis of a conditional asset pricing model, long-run patterns in returns and volatilities, other measures of information flow, and the information environment surrounding earnings announcements reinforce our interpretation of the learning index. Our findings support the model’s predictions and illustrate a novel empirical measure of investor learning.

JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (2)

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