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The Effect of Information Quality on Optimal Portfolio Choice

Lundtofte, Frederik LU (2006) In Financial Review 41(2). p.157-185
Abstract
Three types of agents acting on different information sets are considered: fully informed agents, insiders, and outsiders. Differences in information quality are shown to affect the properties of their optimal portfolios. For an outsider, the share of wealth invested in the stock is decreasing in the variance of the stock. However, for an insider, the effect of an increasing stock variance on the optimal portfolio weight is ambiguous. In a calibration to U.S. data, the confidence intervals of the insider’s demand for the stock converge, whereas the outsider’s confidence intervals become wider.
Please use this url to cite or link to this publication:
author
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
incomplete information, learning, estimation risk, portfolio choice, hedging demands
in
Financial Review
volume
41
issue
2
pages
157 - 185
publisher
Wiley-Blackwell
external identifiers
  • scopus:85010027579
ISSN
0732-8516
language
English
LU publication?
yes
id
e1cd31a4-ba2f-4769-b28e-d2a8a15073fd (old id 1385236)
date added to LUP
2016-04-01 15:42:32
date last changed
2021-03-24 03:37:05
@article{e1cd31a4-ba2f-4769-b28e-d2a8a15073fd,
  abstract     = {Three types of agents acting on different information sets are considered: fully informed agents, insiders, and outsiders. Differences in information quality are shown to affect the properties of their optimal portfolios. For an outsider, the share of wealth invested in the stock is decreasing in the variance of the stock. However, for an insider, the effect of an increasing stock variance on the optimal portfolio weight is ambiguous. In a calibration to U.S. data, the confidence intervals of the insider’s demand for the stock converge, whereas the outsider’s confidence intervals become wider.},
  author       = {Lundtofte, Frederik},
  issn         = {0732-8516},
  language     = {eng},
  number       = {2},
  pages        = {157--185},
  publisher    = {Wiley-Blackwell},
  series       = {Financial Review},
  title        = {The Effect of Information Quality on Optimal Portfolio Choice},
  volume       = {41},
  year         = {2006},
}