The Mechanics of Modeling Information as an Evolutionary Process
As stated in our introduction, it is the ambition of this book to move away from treatment of “information” as a generic term and look at the actual microstructure of information itself. For example, what are the underlying building block components that make up what we as investors perceive to be information, how does this information come together in a meaningful way, what incentives are there for analysts to produce this information and what are the feedback mechanisms in the analysts choice of topic? All are worthy questions that will be answered in due course. Indeed, this chapter houses the “boiler room” of answering the first two conundrums. We do this via the establishment of a framework for understanding the actual building blocks of information — piece-by-piece. Then we go on to investigate the consequences of our approach. As we have hinted at upon numerous occasions in the preceding chapters, we believe there is an analogous link between the micro-foundations in the treatment of information in the evolutionary/biological sphere and the treatment of information within financial markets. It’s just a matter of drawing this striking similarity to the academic community’s (and investor’s) attention. Once this is done, a whole host of interesting results manifest.
KeywordsAsset Price Evolutionary Finance Modeling Information Externality Potential Momentum Strategy
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