Index Investing and Asset Pricing under Information Asymmetry and Ambiguity Aversion / David Hirshleifer, Chong Huang, Siew Hong Teoh.

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Hirshleifer, David

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w24143.Publication details: Cambridge, Mass. National Bureau of Economic Research 2017.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: In a setting with information asymmetry and a tradable value-weighted market index, ambiguity averse investors hold undiversified portfolios, and assets have nonzero alphas. But when a passive fund offers the risk-adjusted market portfolio (RAMP), whose weights depend on information precisions as well as market values, all investors hold the same portfolios as in the economy without model uncertainty and thus engage in index investing. So RAMP improves participation and risk sharing. Asset alphas are zero with RAMP as pricing portfolio. RAMP can be implemented by a fund of funds even if no manager individually has sufficient knowledge to do so.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w24143 (Browse shelf(Opens below))	Not For Loan

Total holds: 0

December 2017.

In a setting with information asymmetry and a tradable value-weighted market index, ambiguity averse investors hold undiversified portfolios, and assets have nonzero alphas. But when a passive fund offers the risk-adjusted market portfolio (RAMP), whose weights depend on information precisions as well as market values, all investors hold the same portfolios as in the economy without model uncertainty and thus engage in index investing. So RAMP improves participation and risk sharing. Asset alphas are zero with RAMP as pricing portfolio. RAMP can be implemented by a fund of funds even if no manager individually has sufficient knowledge to do so.