Estimating the Value of Information
نویسندگان
چکیده
We derive a general expression for the value of information to a price-taking investor in a dynamic environment and provide a framework for its estimation from option prices. We study the value of both private and public information and break it down into its instrumental and psychic parts. We apply this framework and estimate that a consumer-investor with commonlyused preference parameters would pay 4 to 15 basis points of her wealth for a one-time private signal of leading macroeconomic indicators (GDP, unemployment, etc.). The value of information increases with the time discount factor, decreases with risk aversion, and increases with the elasticity of intertemporal substitution. JEL classification: G10, G12, G13, D80, D82, D83
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