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Information Evaluation in Capital Markets

  • Volker Firchau

Part of the Lecture Notes in Economics and Mathematical Systems book series (LNE, volume 268)

Table of contents

About this book

Introduction

An investor who wants to invest a certain amount and to whom a lot of more or less risky alternatives arise would divide this amount among several securities. He makes this portfolio decision because of his expectations with regard to these assets which result from the information available to him. If the investor obtains additional information, then his knowledge would improve and, therefore, the portfolio decision made by him. Accordingly, he will be ready to accept certain costs related to the information procurement. The value of information indicates the maximum tolerable information costs, and its knowledge, therefore, enables - by comparing with the actual information costs - to evaluate the profitability of an information procurement. In this book, the value of information for the problem of portfolio planning is explicitly determined, namely as well for the case of fixed prices not influenced by the information activity as within the scope of a market model. These explicit results allow several conclusions, in particular about the influence of preknowledge, risk aversion, information precision and information dissemination on their value. The Bayesian decision theory is the basis for this paper. Corres­ pondingly, a subjective concept of probability is underlying, and the information processing and evaluation is understood in a sta­ tistical sense. As one might expect, the question about the correct­ ness of an information is not treated, although manipulating the asset prices by deliberate dis information can be observed in prac­ tice and is, certainly, an interesting problem.

Keywords

Portfolio Portfolio Planning capital markets decision theory equilibrium evaluation information information processing information system planning probability procurement

Authors and affiliations

  • Volker Firchau
    • 1
  1. 1.Universität AugsburgAugsburgGermany

Bibliographic information

  • DOI https://doi.org/10.1007/978-3-642-49272-3
  • Copyright Information Springer-Verlag Berlin Heidelberg 1986
  • Publisher Name Springer, Berlin, Heidelberg
  • eBook Packages Springer Book Archive
  • Print ISBN 978-3-540-16462-3
  • Online ISBN 978-3-642-49272-3
  • Series Print ISSN 0075-8442
  • Buy this book on publisher's site
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