Intertemporal Information Acquisition and Investment Dynamics

Abstract

This paper studies intertemporal information acquisition by agents that are rational Bayesian learners and that dynamically optimize over consumption, investment in capital, and investment in information. The model predicts that investors acquire more information in times when future capital productivity is expected to be high, the cost of capital is low, new technologies are expected to have a persistent impact on productivity, and the scalability of investments is expected to be high. My results shed light on the economic mechanisms behind various dynamic aspects of information production by the financial sector, such as the sources of variation in returns on information acquisition for investment banks or private equity funds. Electronic copy available at: http://ssrn.com/abstract=2587852Intertemporal Information Acquisition and Investment DynamicsChristian C. G. Opp * February 2015 AbstractThe paper studies intertemporal information acquisition by agents that are rational Bayesian learners and that dynamically optimize over consumption, investment in capital, and investment in information. The model predicts that investors acquire more information in times when future capital productivity is expected to be high, the cost of capital is low, new technologies are expected to have a persistent impact on productivity, and the scalability of investments is expected to be high. My results shed light on the economic mechanisms behind various dynamic aspects of information production by the financial sector, such as the sources of variation in returns on information acquisition for investment banks or private equity funds.JEL topic area codes: C61, D83, D91, D92, G24

Comovement, financial reporting complexity, and information markets: Evidence from the effect of changes in 10-Q lengths on internet search volumes and peer correlations

“…For instance, even though we obtain evidence suggesting that investors respond to more complex accounting reports by demanding information from other sources, we do not know with certainty how effective this strategy is at mitigating uncertainty. Predictions from general equilibrium models with endogenous information acquisition (Clinch and Lombardi, 2011;Opp, 2015;Han and Yang, 2013) are contradictory and highly dependent on model assumptions. This leaves managers and regulators with no definite answer on how complexity influences cost of capital.…”