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

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  • Matthijs Breugem
  • Adrian Buss

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 e ective risk-aversion, which reduces his willingness to speculate and, consequently, his desire to acquire infor- mation. 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.

Suggested Citation

  • Matthijs Breugem & Adrian Buss, 2017. "Institutional Investors and Information Acquisition: Implications for Asset Prices and Informational Efficiency," Carlo Alberto Notebooks 524, Collegio Carlo Alberto.
    • Handle: RePEc:cca:wpaper:524
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    Cited by:

    1. Buffa, Andrea M. & Hodor, Idan, 2023. "Institutional investors, heterogeneous benchmarks and the comovement of asset prices," Journal of Financial Economics, Elsevier, vol. 147(2), pages 352-381.

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    More about this item

    Keywords

    benchmarking; institutional investors; asset pricing; asset alloca- tion; information acquisition; equilibrium; informational efficiency.;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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