Journal of Financial and Quantitative Analysis Vol. 40 No. 2 2005
Learning with Information Capacity Constraints
Abstract
Motivated by the fact that investors have limited time and attention to process information, this paper provides a continuous-time equilibrium model to analyze the effects of a capacity constraint in the learning process of a representative investor, who optimally allocates her information capacity across multiple sources of uncertainty. Consequently, the cross-sectional structure of information and the resulting asset price dynamics are determined endogenously. The model provides implications on both consumption behavior and the cross-sectional differences in price informativeness in terms of supply of information, speed of price adjustments to fundamental shocks, and price reactions to firm disclosures.
- DOI
- 10.1017/s0022109000002325
- Volume
- 40
- Issue
- 2
- Pages
- 307-329
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref