Advanced Search
MyIDEAS: Login to save this article or follow this journal

Information Acquisition and Under-Diversification

Contents:

Author Info

  • Stijn Van Nieuwerburgh
  • Laura Veldkamp

Abstract

If an investor wants to form a portfolio of risky assets and can exert effort to collect information on the future value of these assets before he invests, which assets should he learn about? The best assets to acquire information about are ones the investor expects to hold. But the assets the investor holds depend on the information he observes. We build a framework to solve jointly for investment and information choices, with general preferences and information cost functions. Although the optimal research strategies depend on preferences and costs, the main result is that the investor who can first collect information systematically deviates from holding a diversified portfolio. Information acquisition can rationalize investing in a diversified fund and a concentrated set of assets, an allocation often observed, but usually deemed anomalous. Copyright , Wiley-Blackwell.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://hdl.handle.net/10.1111/j.1467-937X.2009.00583.x
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Oxford University Press in its journal The Review of Economic Studies.

Volume (Year): 77 (2010)
Issue (Month): 2 ()
Pages: 779-805

as in new window
Handle: RePEc:oup:restud:v:77:y:2010:i:2:p:779-805

Contact details of provider:

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Epstein, Larry G & Zin, Stanley E, 1989. "Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: A Theoretical Framework," Econometrica, Econometric Society, Econometric Society, vol. 57(4), pages 937-69, July.
  2. Dimitri Vayanos, 2003. "The Decentralization of Information Processing in the Presence of Interactions," Review of Economic Studies, Oxford University Press, Oxford University Press, vol. 70(3), pages 667-695.
  3. Zoran Ivkovich & Clemens Sialm & Scott Weisbenner, 2004. "Portfolio Concentration and the Performance of Individual Investors," NBER Working Papers 10675, National Bureau of Economic Research, Inc.
  4. Guiso, Luigi & Jappelli, Tullio, 2006. "Information Acquisition and Portfolio Performance," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5901, C.E.P.R. Discussion Papers.
  5. Massa, Massimo & Simonov, Andrei, 2004. "Hedging, Familiarity and Portfolio Choice," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4789, C.E.P.R. Discussion Papers.
  6. Bullard, J. & Evans, G.W. & Honkapohja ,S., 2005. "Near-Rational Exuberance," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 0546, Faculty of Economics, University of Cambridge.
  7. Brunnermeier, Markus & Gollier, Christian & Parker, Jonathan, 2007. "Optimal Beliefs, Asset Prices, and the Preference for Skewed Returns," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 429, Institut d'Économie Industrielle (IDEI), Toulouse.
  8. Maćkowiak, Bartosz & Wiederholt, Mirko, 2009. "Optimal sticky prices under rational inattention," Working Paper Series, European Central Bank 1009, European Central Bank.
  9. Zoran Ivkovic & Scott Weisbenner, 2005. "Local Does as Local Is: Information Content of the Geography of Individual Investors' Common Stock Investments," Journal of Finance, American Finance Association, American Finance Association, vol. 60(1), pages 267-306, 02.
  10. Albuquerque, Rui & Bauer, Gregory H. & Schneider, Martin, 2004. "International equity flows and returns: a quantative equilibrium approach," Working Paper Series, European Central Bank 0310, European Central Bank.
  11. Bruno Biais & Peter Bossaerts & Chester Spatt, 2003. "Equilibrium Asset Pricing Under Heterogeneous Information," Levine's Bibliography 666156000000000086, UCLA Department of Economics.
  12. Laura E. Kodres & Matthew Pritsker, 2002. "A Rational Expectations Model of Financial Contagion," Journal of Finance, American Finance Association, American Finance Association, vol. 57(2), pages 769-799, 04.
  13. Spence, Michael & Zeckhauser, Richard J, 1972. "The Effect of the Timing of Consumption Decisions and the Resolution of Lotteries on the Choice of Lotteries," Econometrica, Econometric Society, Econometric Society, vol. 40(2), pages 401-03, March.
  14. Barlevy, Gadi & Veronesi, Pietro, 2000. "Information Acquisition in Financial Markets," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 67(1), pages 79-90, January.
  15. Pascal J. Maenhout, 2004. "Robust Portfolio Rules and Asset Pricing," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 17(4), pages 951-983.
  16. Marcin Kacperczyk & Clemens Sialm & Lu Zheng, 2005. "On the Industry Concentration of Actively Managed Equity Mutual Funds," Journal of Finance, American Finance Association, American Finance Association, vol. 60(4), pages 1983-2011, 08.
  17. Joël Peress, 2004. "Wealth, Information Acquisition, and Portfolio Choice," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 17(3), pages 879-914.
  18. Valery Polkovnichenko, 2005. "Household Portfolio Diversification: A Case for Rank-Dependent Preferences," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 18(4), pages 1467-1502.
  19. Marco Cagetti & Lars Peter Hansen & Thomas Sargent & Noah Williams, 2002. "Robustness and Pricing with Uncertain Growth," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 15(2), pages 363-404, March.
  20. Alok Kumar & William N. Goetzmann, 2003. "Diversification Decisions of Individual Investors and Asset Prices," Yale School of Management Working Papers, Yale School of Management ysm441, Yale School of Management.
  21. Timothy Van Zandt & Roy Radner, 1998. "Real-Time Decentralized Information Processing and Returns to Scale," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 1233, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:oup:restud:v:77:y:2010:i:2:p:779-805. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press) or (Christopher F. Baum).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.