Information quality and stock returns revisited

F. Brevik, S. d' Addona

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

This paper investigates the relation between information on the state of the economy and equity risk premium. We use a setup where investors have Epstein-Zin preferences and the economy randomly switches between booms and recessions. We are able to establish 2 key results: First, investors with high elasticity of intertemporal substitution (EIS) will require lower excess returns for holding stocks if they are provided with better information on the state of the economy. Second, we find that this also holds for investors with moderate EIS if they are sufficiently risk averse. © 2010 Michael G. Foster School of Business, University of Washington.
Original languageEnglish
Pages (from-to)1419-1446
JournalJournal of Financial and Quantitative Analysis
Volume45
Issue number6
DOIs
Publication statusPublished - 2010

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