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Estimating the Value of Information

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  • Ohad Kadan
  • Asaf Manela

Abstract

We derive a general expression for the value of information to a price-taking investor in a dynamic environment and provide a framework for its estimation. We study the value of both private and public information and break it into its instrumental and psychic parts. To illustrate, we estimate and rank the values of leading macroeconomic indicators (GDP, employment, etc.). Using variations in option prices, we find that consumer-investors with conventional preference parameters would pay 3 to 5 bps of their wealth for a one-time private peek into these indicators. Such signals provide substantial instrumental value but a minor psychic value.Received August 29, 2016; editorial decision June 6, 2018 by Editor Itay Goldstein. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Ohad Kadan & Asaf Manela, 2019. "Estimating the Value of Information," The Review of Financial Studies, Society for Financial Studies, vol. 32(3), pages 951-991.
    • Handle: RePEc:oup:rfinst:v:32:y:2019:i:3:p:951-991.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhy087
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    Cited by:

    1. Zongxia Liang & Qi Ye, 2024. "Optimal information acquisition for eliminating estimation risk," Papers 2405.09339, arXiv.org.
    2. Li, Frank Weikai & Sun, Chengzhu, 2022. "Information acquisition and expected returns: Evidence from EDGAR search traffic," Journal of Economic Dynamics and Control, Elsevier, vol. 141(C).
    3. Banerjee, Snehal & Breon-Drish, Bradyn & Kaniel, Ron & Kremer, Ilan, 2023. "On the voluntary disclosure of redundant information," Journal of Economic Theory, Elsevier, vol. 214(C).
    4. Rahul Deb & Mallesh M. Pai & Maher Said, 2019. "Dynamic Incentives for Buy-Side Analysts," Working Papers 19-01, New York University, Leonard N. Stern School of Business, Department of Economics.
    5. Liu, Hong & Tang, Xiaoxiao & Zhou, Guofu, 2022. "Recovering the FOMC risk premium," Journal of Financial Economics, Elsevier, vol. 145(1), pages 45-68.

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