Do Better Informed Investors Always Do Better?

Glenn Boyle () and Gerald Ward

Working Papers in Economics from University of Canterbury, Department of Economics and Finance

Abstract: We investigate the value of additional, but imperfect, investment information using data from a singular source: auctions of yearling racehorses. Horse breeders possess superior information about their own horses and, in the setting we examine, have strong financial incentives to buy the best of these back at auction. Despite this, those they choose to repurchase subsequently perform significantly worse on average, earning 30% less at the racetrack than horses purchased by outsiders. This puzzling finding cannot be explained by differences in horse risk or breeder abilities, or by non-standard preferences or behavioral biases. Some weak evidence suggests that it partly reflects opportunity cost differences, but the primary puzzle remains. A little knowledge can apparently be dangerous, although the exact mechanism by which this occurs is unclear.

Keywords: information; auctions; racehorses; IPOs (search for similar items in EconPapers)
JEL-codes: D44 G02 G11 G14 L83 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2016-11-15
New Economics Papers: this item is included in nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:cbt:econwp:16/29

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