17 Dec 2024
Recently, the collaborative paper titled "The Social Value of Information Uncertainty" by Professor Tony He from the Department of Finance at the International Business School Suzhou (IBSS) of Xi'an Jiaotong-Liverpool University (XJTLU) has been accepted and published in the Journal of Economic Behavior and Organization, an international authoritative ABDC A* journal. This study explores how the uncertainty of information acquisition affects the social welfare of financial markets within the Grossman-Stiglitz economic framework.
In the financial field, the social value of information has always been controversial. Advanced technologies have changed how information is produced and processed. However, multiple dimensions of information complexity and uncertainty can limit information processing capacity and make information acquisition costly and uncertain. Investors often need to make an effort (and hence spend money) to acquire information; the more effort they make, the more likely they can acquire it. Can such costly and uncertain information acquisition improve investors' welfare?
This study provides a new perspective by deeply analyzing the welfare implication of information acquisition uncertainty in a Grossman-Stiglitz economy with endowment shocks. The research team points out that the traditional view believes that, due to the dominance of return over risk, acquiring private information about the future returns of risky assets will reduce social welfare. However, their research finds that information acquisition uncertainty gives rise to an anticipatory benefit so that informed trading can improve social welfare. The welfare improvement can be significant when investors have weak risk-sharing incentives, the endowment shocks are small and less informative about the aggregate endowment, and the risky payoff information is noisier.
Moreover, the study also reveals that with heterogeneous endowments, a continuum of Pareto optimal information-acquisition equilibria can exist. Therefore, policymakers should exercise great caution when imposing regulations that may discourage information acquisition. Recommendations of low-cost index-investing strategies may be misguided, as it might harm welfare if investors collect too little information.
This study not only provides a new theoretical framework for understanding the role of information in financial markets but also offers new insights into financial regulatory policies. The results emphasize that under certain market conditions, the uncertainty of information acquisition can simultaneously improve expected welfare and price efficiency, which is an important revelation for financial regulatory authorities.
Professor Xuezhong (Tony) He joined the Department of Finance as a Professor in Finance in 2022. Before joining XJTLU, Tony was a Professor of Finance at the University of Technology Sydney (UTS) from 2010 to 2021. Before that, he worked at the University of Sydney and UTS as a Lecturer, Senior Lecturer, and Associate Professor. In addition, he has been a Co-Editor of the Journal of Economic Dynamics and Control (an ABDC A* journal) for 10 years (2013-2022), a Senior Editor, Department Editor, Associate Editor, and Guest Editor for several other journals. In 2023, Tony was awarded as a Distinguished Foreign Expert-Dushuhu Science and Technology Innovation District Administration, Suzhou Industrial Park.
Tony is an internationally recognized expert in asset pricing, financial market modeling, market microstructure, financial economics, and nonlinear dynamics in finance and economics. His international research profile is attested by his publications in the field of finance and economics, such as Journal of Finance and Management Science, invited contributions to the prestigious Handbook of Financial Markets and Handbook of Computational Economics, numerous keynote talks at international conferences, and many competitively Australian and Chinese research grants (in a total of AUD$2 million, including four Australian Research Council Discovery (ARC) Project Grants, one ARC Linkage Project, and a total of RMB7.6 million three grants in National Natural Science Foundation of China).
Regarding research impact, RePEc (Research Papers in Economics) Ranking puts Tony in the Top 3% in Asia and China. He has published one book, 15 chapters, and more than 60 journal papers. His publications have been highly cited (more than 3,600 times in Scopus and 6,000 times in Google Scholar). Tony is a Highly Cited Chinese Researcher of 2022-2023 by Elsevier for contributions to Applied Economics, one of the two at the XJTLU.
The Journal of Economic Behavior and Organization is listed as an ABDC A* journal. It is devoted to theoretical and empirical research concerning economic decision, organization, and behavior and to economic change in all its aspects. Its specific purposes are to foster an improved understanding of how human cognitive, computational, and informational characteristics influence the working of economic organizations and market economies and how an economy's structural features lead to various types of micro and macro behavior, to changing patterns of development, and to institutional evolution.
17 Dec 2024