Information aggregation with asymmetric asset payoffs

Elias Albagli, Christian Hellwig () and Aleh Tsyvinski
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Elias Albagli: Central Bank of Chile
Christian Hellwig: TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement
Aleh Tsyvinski: Yale University [New Haven]

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Abstract: We study noisy aggregation of dispersed information in financial markets without imposing parametric restrictions on preferences, information, and return distributions. We provide a general characterization of asset returns by means of a risk-neutral probability measure that features excess weight on tail risks. Moreover, we link excess weight on tail risks to observable moments such as forecast dispersion and accuracy, and argue that it provides a unified explanation for several prominent cross-sectional return anomalies. Simple calibrations suggest the model can account for a significant fraction of empirical returns to skewness, returns to disagreement and interaction effects between the two.

Date: 2024-08
Note: View the original document on HAL open archive server: https://hal.science/hal-04867329v1
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Published in Journal of Finance, 2024, 79 (4), pp.2715-2758. ⟨10.1111/jofi.13361⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04867329

DOI: 10.1111/jofi.13361

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