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Information acquisition and asset price volatility

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  • Baek, Seungjun

Abstract

I provide a channel by which information cost affects asset price volatility. Asset payoffs depend on two exogenous states, an unknown state about which buyers obtain costly information and a known state at the time of trading. Whereas the price of an asset with a higher information cost shows less sensitivity in response to changes in an unknown state, the asset price exhibits excess volatility in response to a known shock. This can explain how a small liquidty shock causes large fluctuations in asset markets.

Suggested Citation

  • Baek, Seungjun, 2022. "Information acquisition and asset price volatility," Finance Research Letters, Elsevier, vol. 46(PA).
    • Handle: RePEc:eee:finlet:v:46:y:2022:i:pa:s1544612321002932
    DOI: 10.1016/j.frl.2021.102236
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    References listed on IDEAS

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    Cited by:

    1. Zhou, Biao & Cheng, Linting & Liu, Xiaofei, 2024. "QFII shareholding, information access and corporate asset mismatching," Finance Research Letters, Elsevier, vol. 61(C).
    2. Dammak, Wael & Boutouria, Nahla & Ben Hamad, Salah & de Peretti, Christian, 2023. "Investor behavior in the currency option market during the COVID-19 pandemic," The Journal of Economic Asymmetries, Elsevier, vol. 28(C).
    3. Dammak, Wael & Hamad, Salah Ben & de Peretti, Christian & Eleuch, Hichem, 2023. "Pricing of European currency options considering the dynamic information costs," Global Finance Journal, Elsevier, vol. 58(C).

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    More about this item

    Keywords

    Asset price volatility; Information acquisition; Securities markets;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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