The Effect of Information Quality on Optimal Portfolio Choice
(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:
https://lup.lub.lu.se/record/1385236
- author
- Lundtofte, Frederik LU
- organization
- publishing date
- 2006
- 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
- 2022-01-28 06:43:53
@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}}, keywords = {{incomplete information; learning; estimation risk; portfolio choice; hedging demands}}, 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}}, }