communication: RISK I: Information effects in longevity-linked vs purely financial portfolios
speaker: Elisa Luciano (Università degli Studi di Torino)speaker: Antonella Tolomeo
abstract: Whenever a new financial product is offered by the financial industry, rational investors face a trade off between diversification benefits and costs of “getting to know” the newly introduced asset. A paramount example is offered by longevitylinked bonds. This paper considers investors who can decide either to pay a fee and separate the information on different risks affecting their asset value, or to remain uninformed and receive a nonseparating signal. Uninformed investors optimally filter their pooled signal. The paper provides conditions under which diversification benefits are exploited, both when the investor decides to remain uninformed and when he does not. It also provides conditions under which investors diversify when fees are low, after having acquired information, and remain undiversified when information fees are too high: they rationally prefer to remain undiversified, but to avoid information costs.
timetable:
Thu 28 Jan, 9:00 - 10:30, Sala Azzurra
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