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Relative Performance Concerns, Attention Allocation and Complementarities in Information Acquisition

  • Niu, Zilong

This article studies how relative performance concerns affect institutional investors' information choices in the context of a multi-security market. I show that due to relative performance concerns and learning capacity constraint, institutional investors tend to acquire the same piece of information and the same asset as their peers. I also show that the change of distribution of capacity constraint can affect the price efficiency and cost of capital, but only through its effect on investors' average capacity constraint.

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File URL: http://mpra.ub.uni-muenchen.de/51194/1/MPRA_paper_51194.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 51194.

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Date of creation: 04 Sep 2013
Date of revision: 02 Nov 2013
Handle: RePEc:pra:mprapa:51194
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  1. Admati, Anat R, 1985. "A Noisy Rational Expectations Equilibrium for Multi-asset Securities Markets," Econometrica, Econometric Society, vol. 53(3), pages 629-57, May.
  2. David Easley & Maureen O'hara, 2004. "Information and the Cost of Capital," Journal of Finance, American Finance Association, vol. 59(4), pages 1553-1583, 08.
  3. Joël Peress, 2004. "Wealth, Information Acquisition, and Portfolio Choice," Review of Financial Studies, Society for Financial Studies, vol. 17(3), pages 879-914.
  4. Hellwig, Christian & Veldkamp, Laura, 2007. "Knowing What Others Know: Coordination Motives in Information Acquisition," CEPR Discussion Papers 6506, C.E.P.R. Discussion Papers.
  5. Hellwig, Martin F., 1980. "On the aggregation of information in competitive markets," Journal of Economic Theory, Elsevier, vol. 22(3), pages 477-498, June.
  6. David Hirshleifer & Siew Hong Teoh, 2003. "Herd Behaviour and Cascading in Capital Markets: a Review and Synthesis," European Financial Management, European Financial Management Association, vol. 9(1), pages 25-66.
  7. Stijn Van Nieuwerburgh & Laura Veldkamp, 2008. "Information Acquisition and Under-Diversification," NBER Working Papers 13904, National Bureau of Economic Research, Inc.
  8. Abel, Andrew B, 1990. "Asset Prices under Habit Formation and Catching Up with the Joneses," American Economic Review, American Economic Association, vol. 80(2), pages 38-42, May.
  9. Stijn Van Nieuwerburgh & Laura Veldkamp, 2009. "Information Immobility and the Home Bias Puzzle," Journal of Finance, American Finance Association, vol. 64(3), pages 1187-1215, 06.
  10. Sushil Bikhchandani & Sunil Sharma, 2001. "Herd Behavior in Financial Markets," IMF Staff Papers, Palgrave Macmillan, vol. 47(3), pages 1.
  11. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November.
  12. Bengt Holmstrom, 1981. "Moral Hazard in Teams," Discussion Papers 471, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  13. Judith A. Chevalier & Glenn D. Ellison, 1995. "Risk Taking by Mutual Funds as a Response to Incentives," NBER Working Papers 5234, National Bureau of Economic Research, Inc.
  14. Diego García & Günter Strobl, 2011. "Relative Wealth Concerns and Complementarities in Information Acquisition," Review of Financial Studies, Society for Financial Studies, vol. 24(1), pages 169-207.
  15. Gali, Jordi, 1994. "Keeping Up with the Joneses: Consumption Externalities, Portfolio Choice, and Asset Prices," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(1), pages 1-8, February.
  16. Kenneth A. Froot & David S. Scharfstein & Jeremy C. Stein, 1990. "Herd on the Street: Informational Inefficiencies in a Market with Short-Term Speculation," NBER Working Papers 3250, National Bureau of Economic Research, Inc.
  17. Richard W. Sias, 2004. "Institutional Herding," Review of Financial Studies, Society for Financial Studies, vol. 17(1), pages 165-206.
  18. Mondria, Jordi, 2010. "Portfolio choice, attention allocation, and price comovement," Journal of Economic Theory, Elsevier, vol. 145(5), pages 1837-1864, September.
  19. Palomino, Frederic, 2005. "Relative performance objectives in financial markets," Journal of Financial Intermediation, Elsevier, vol. 14(3), pages 351-375, July.
  20. Choi, Nicole & Sias, Richard W., 2009. "Institutional industry herding," Journal of Financial Economics, Elsevier, vol. 94(3), pages 469-491, December.
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