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Asset pricing with an imprecise information set

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  • Jacoby, Gady
  • Lee, Gemma
  • Paseka, Alexander
  • Wang, Yan

Abstract

We provide a novel theoretical platform for pricing imprecise accounting information through a separate market risk premium, three distinct information-quality betas, and a risk premium associated with portfolios that hedge against imprecise-information risk for individual assets over time. The first information-quality beta is related to the covariance between market-wide imprecise-information return error and security precise return. The second beta represents commonality in information quality, which is priced by investors seeking to curtail adverse effects of imprecise information on their portfolio value. The third beta implies that investors prefer stocks issued by firms that tend to, erroneously or deliberately, release false positive information about the firm when the market is bearish.

Suggested Citation

  • Jacoby, Gady & Lee, Gemma & Paseka, Alexander & Wang, Yan, 2019. "Asset pricing with an imprecise information set," Pacific-Basin Finance Journal, Elsevier, vol. 53(C), pages 82-93.
    • Handle: RePEc:eee:pacfin:v:53:y:2019:i:c:p:82-93
    DOI: 10.1016/j.pacfin.2018.10.001
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    Cited by:

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    More about this item

    Keywords

    Asset pricing; Accounting information risk;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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