Institutional Investors and Information Acquisition: Implications for Asset Prices and Informational Efficiency

Matthijs Breugem and Adrian Buss

No 23561, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We jointly model the information choice and portfolio allocation problem of institutional investors who are concerned about their performance relative to a benchmark. Benchmarking increases an investor's effective risk-aversion, which reduces his willingness to speculate and, consequently, his desire to acquire information. In equilibrium, an increase in the fraction of benchmarked institutional investors leads to a decline in price informativeness, which can cause a decline in the prices of all risky assets and the market portfolio. The decline in price informativeness also leads to a substantial increase in return volatilities and allows non-benchmarked investors to substantially outperformed benchmarked investors.

JEL-codes: G11 G14 G23 (search for similar items in EconPapers)
Date: 2017-06
Note: AP
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Citations: View citations in EconPapers (1)

Published as Matthijs Breugem & Adrian Buss, 2019. "Institutional Investors and Information Acquisition: Implications for Asset Prices and Informational Efficiency," The Review of Financial Studies, vol 32(6), pages 2260-2301.

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