Investor Information Choice with Macro and Micro Information

Paul Glasserman, Harry Mamaysky and Thierry Foucault

The Review of Asset Pricing Studies, 2023, vol. 13, issue 1, 1-52

Abstract: We develop a model of information and portfolio choice in which ex ante identical investors choose to specialize because of fixed attention costs required in learning about securities. Without this friction, investors would invest in all securities and would be indifferent across a wide range of information choices. When securities’ dividends depend on an aggregate (macro) risk factor and idiosyncratic (micro) shocks, fixed attention costs lead investors to specialize in either macro or micro information. Our results favor Samuelson’s dictum that markets are more micro than macro efficient. We derive testable predictions from our model and find empirical support for our predictions in specialization by U.S. equity mutual funds. (JEL G12, G14, G23)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.

Date: 2023
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