Information Choice, Uncertainty, and Expected Returns

Abstract

We investigate how information choices affect equity returns and risk. Building on an existing theoretical model of information and investment choice, we estimate a learning index that reflects the expected benefits of learning about an asset. High learning index stocks have lower future returns and risk compared to low learning index stocks. Analysis of a conditional asset pricing model, long-run patterns in returns and volatilities, other measures of information flow, and the information environment surrounding earnings announcements reinforce our interpretation of the learning index. Our findings support the model’s predictions and illustrate a novel empirical measure of investor learning.

Public Market Information and Venture Capital Investment

“…Numerous recent studies examine how public market participants allocate attention to different information sources (Da, Engelberg, andGao (2011), Drake, Roulstone, andThornock (2015), Ben-Rephael, Da, and Israelsen (2017), Li and Sun (2017), and Gargano and Rossi (2018)). This literature includes a growing body of studies that utilize the EDGAR data set to measure information acquisition in the aggregate (Drake et al (2015), Bauguess, Cooney, and Hanley (2018), Drake et al (2020), andCao, Gempesaw, andSimin (2021)) and for institutional users, including mutual funds (Iliev, Kalodimos, and Lowry (2021), Chen, Cohen, Gurun, Lou, and Malloy (2020)), equity research analysts (Gibbons, Iliev, and Kalodimos (2021)), and hedge funds (Crane, Crotty, and Umar (2018)). I extend this research to VC firms, an integral intermediary in the private market.…”