Costly Information Acquisition and Equilibrium Asset Pricing in Equity Markets with Ambiguity-Averse Investors

Student: Bacherikov Pavel

Faculty: International College of Economics and Finance

Educational Programme: Financial Economics (Master)

Year of Graduation: 2018

We investigate the effect of microstructure uncertainty - uncertainty about the structure of equity market participants - on equity premium, stock price and optimal demand in rational expectations equilibrium setup. We show that for extreme ambiguity-aversion of investors, microstructure uncertainty induces higher equity premium, lower asset prices, and the value of information which is strictly lower than in fully revealing case. We further use this analysis to study the effect of cost of information on all of the above parameters.

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