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Information loss from perception alignment

Author

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  • Ardakani, Omid M.
  • Dalko, Viktoria
  • Shim, Hyeeun

Abstract

This paper examines how synchronized investor perceptions of future asset returns affect market information dynamics. We introduce an empirical framework that applies information-theoretic measures, such as Kullback–Leibler and Jensen–Shannon divergences, to quantify the extent of perception alignment among investors and its impact on information loss. The findings show that heightened perception alignment increases information loss, especially during the COVID-19 pandemic. The findings emphasize our ability to measure information loss and capture shifts in investor behavior, with applications extending to various markets and events.

Suggested Citation

  • Ardakani, Omid M. & Dalko, Viktoria & Shim, Hyeeun, 2025. "Information loss from perception alignment," International Review of Economics & Finance, Elsevier, vol. 97(C).
    • Handle: RePEc:eee:reveco:v:97:y:2025:i:c:s1059056024008220
    DOI: 10.1016/j.iref.2024.103830
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    More about this item

    Keywords

    Information theory; Perception alignment; Divergence measures;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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