Citation

Discussion Paper Details

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

Author(s): Matthijs Breugem and Adrian Buss

Publication Date: April 2018

Keyword(s): asset allocation, Asset Pricing, benchmarking, Informational efficiency and institutional investors

Programme Area(s): Financial Economics

Abstract: We study the joint portfolio and information choice problem of institutional investors who are concerned about their performance relative to a benchmark. Benchmarking influences information choices through two distinct economic mechanisms. First, benchmarking reduces the number of shares in investors' portfolios that are sensitive to private information. Second, benchmarking limits investors' willingness to speculate. Both effects imply a decline in the value of private information. Hence, in equilibrium, investors acquire less information and informational efficiency declines. As a result, return volatility increases and benchmarking can cause a decline in equilibrium stock prices. Moreover, less-benchmarked institutional investors outperform more-benchmarked ones.

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Bibliographic Reference

Breugem, M and Buss, A. 2018. 'Institutional Investors and Information Acquisition: Implications for Asset Prices and Informational Efficiency'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=12900