NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Information Acquisition and Under-Diversification

Stijn Van Nieuwerburgh, Laura Veldkamp

NBER Working Paper No. 13904
Issued in March 2008
NBER Program(s):   AP   EFG   IFM

If an investor wants to form a portfolio of risky assets and can exert effort to collect information on the future value of these assets before he invests, which assets should he learn about? The best assets to acquire information about are ones the investor expects to hold. But the assets the investor holds depend on the information he observes. We build a framework to solve jointly for investment and information choices, with a variety of preferences and information cost functions. Although the optimal research strategies depend on preferences and costs, the main result is that the investor who can first collect information systematically deviates from holding a diversified portfolio. Information acquisition can rationalize investing in a diversified fund and a concentrated set of assets, an allocation often observed, but usually deemed anomalous.

download in pdf format
   (321 K)

email paper

This paper is available as PDF (321 K) or via email.

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w13904

Published: Stijn Van Nieuwerburgh & Laura Veldkamp, 2010. "Information Acquisition and Under-Diversification," Review of Economic Studies, Blackwell Publishing, vol. 77(2), pages 779-805, 04.

Users who downloaded this paper also downloaded these:
Bacchetta and van Wincoop w11633 Rational Inattention: A Solution to the Forward Discount Puzzle
Van Nieuwerburgh and Veldkamp w13366 Information Immobility and the Home Bias Puzzle
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us