Valuing information using utility functions: how much should we pay for linear factor models?

Soosung Hwang () and Steve Satchell

The European Journal of Finance, 2005, vol. 11, issue 1, 1-16

Abstract: Thus paper reports on an investigation into what is an appropriate level of investment management fees. Existing results are extended and several formulae are provided for the case of power utility and normal returns. Using the CRRA utility function with the range of the coefficient of the CRRA suggested by Mehra and Prescott, it is found that the value of information added by the linear factor models of Fama and French exceeds observed management fees and only equals them for hitherto unmeasured magnitudes of risk aversion.

Keywords: CAPM; Fama-French model; value of information; logarithmic and power utilities (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (1)

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DOI: 10.1080/1351847042000286630

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