Review of Financial Studies Vol. 32 No. 3 2019
Estimating the Value of Information
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.
- DOI
- 10.1093/rfs/hhy087
- Volume
- 32
- Issue
- 3
- Pages
- 951-991
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref