Information Acquisition and Under-Diversification / Stijn Van Nieuwerburgh, Laura Veldkamp.

Format:

Book

Author/Creator:

Van Nieuwerburgh, Stijn.

Contributor:

National Bureau of Economic Research.

Veldkamp, Laura.

Series:

Working Paper Series (National Bureau of Economic Research) no. w13904.

NBER working paper series no. w13904

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2008.

Summary:

If an investor wants to form a portfolio of risky assets and can exert effort to collect information on the future value of these assets before he invests, which assets should he learn about? The best assets to acquire information about are ones the investor expects to hold. But the assets the investor holds depend on the information he observes. We build a framework to solve jointly for investment and information choices, with a variety of preferences and information cost functions. Although the optimal research strategies depend on preferences and costs, the main result is that the investor who can first collect information systematically deviates from holding a diversified portfolio. Information acquisition can rationalize investing in a diversified fund and a concentrated set of assets, an allocation often observed, but usually deemed anomalous.

Notes:

Print version record

March 2008.