Empirical estimates of beta when investors face estimation risk

Article Abstract:

We examine empirical implications of models of differential information that formalize the following intuition: securities for which there is relatively little information are perceived as relatively more risky because of the greater uncertainty surrounding the exact parameters of their return distributions. The implication that beta risk for low information firms should decline as information increases is confirmed with several data sets. We find such a decline over the first several periods subsequent to initial public offerings and initial listings. There is also an abrupt risk decline at the first annual earnings announcement. (Reprinted by permission of the publisher.)

Evaluation, Investment analysis, Securities analysis

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Performance measurement under asymmetric information and investment constraints

Article Abstract:

The fact that investment policies are often restricted appears to have been neglected in the performance measurement literature. This paper, using a standard information model, shows how the introduction of constraints on the proportion of assets to be invested in the market affects the expected portfolio returns and the value of a portfolio manager's performance. The results are related to the classical Treynor and Mazuy (1966) conjectures about characteristic lines. (Reprinted by permission of the publisher.)

Models, Portfolio management, Information theory, Treynor, J.L., Mazuy, K.K.

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