We often hear that information is crucial to investors in the financial market. Comment on the role of information in the asset pricing models we saw in class.
Details:
Your essay should have up to 1000 words, and should be submitted on Turnitin either in word or in pdf format.
For each of the asset pricing models we saw in class (CAPM and APT), your essay should describe the assumptions about what information investors have on the available assets. What information do the models depend on, which model has stronger assumptions, and how so? What is the prediction of each of these models regarding investor demand for information in equilibrium: should an individual investor try to get information if doing so is costly? Based on your knowledge of market intermediaries – e.g. banks, mutual funds, brokers – and the services they provide, assess whether this is a good description of the demand for information in the real world. Comment on the assessment in light of the efficient market hypothesis.
Give a detailed account of each of the points above. You are encouraged to draw from the BKM textbook.
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