Information paradox (capital market theory)
The information paradox arises from the assumption that in a stock trade the information available to the investor and its quality have a direct influence on the returns achieved . Accordingly, the one with the best information would also be the one with the best return, the one with the worst information the one with the lowest return.
Paradoxically, however, an average return could be achieved even if one had no information at all, namely by scattering as much as possible. The greater the spread, the greater the probability of achieving a return equal to the average return.
For example, if you were to buy a certain percentage of the same percentage of every company in the world, you would definitely get exactly the average return, although you don't have to have any market-relevant information.
criticism
The information paradox is a theoretical artifact. It only occurs on the assumption that the diversification or the additional spread of an investment amount does not cause any additional costs. In reality, transaction costs arise from payment transactions, for each additional counterparty, additional markets and exchanges, for additional investment regions or investment currencies. For all types of investment special investment conditions apply ( english terms of service and terms and conditions ) compliance information costs and capacity costs (eg. As for the management and the balance of correspondent accounts) cause. In practice, the equal distribution of the investment amount cannot lead to the specified average return. Since the transaction costs are incurred independently of the return on individual positions, the costs of the inferior positions have to be settled regularly - in order to maintain the equal distribution - by dissolving higher-value positions.
See also
- arbitrage
- Efficiency market hypothesis (EMH)
literature
- Steffen Kehrer: The information paradox of Sanford Grossman and Joseph Stiglitz. GRIN Publishing, Chemnitz University of Technology 2012. ISBN 978-3-656307099 .
- Klaus Schredelseker: The information paradox, the real challenge. In: Understanding the Financial Market, pp. 145–147. Springer Spectrum, Wiesbaden 2015. ISBN 978-3-658-08703-6 .