Abstract
Higher signal precision helps to predict returns more accurately. But higher signal precision requires higher more costs and longer time. The acquisition of higher precision signals has two opposite effects for investors. First, the higher precision helps with return forecast. Second, the longer processing time is a disadvantage for decision making. We build a rational expected model under the assumption that the longer processing time takes, the higher the signal precision. The results show that higher signal precision is not always better after considering signal processing time. There is an optimal signal waiting time for investors.
Highlights
The abundance and precision of signals will affect investors’ investment decisions and returns
The results show that higher signal precision is not always better after considering signal processing time
We quantifies the loss of signal accuracy due to production time, studies the influence of time cost on the investor’s signal precision selection, and gives the optimal waiting time of different precision signals for investors
Summary
The abundance and precision of signals will affect investors’ investment decisions and returns. Jérôme & Thierry (2018) shows that when the cost of producing low precision signals declines, prices are more likely to reflect these signals before higher. Prices are more likely to reflect lower precision signals before higher precision signals become available. The reduction of high precision signal cost has an impact on both the demand of higher and lower precision signal investors. They argue that private information is obtained through investors’ efforts, and the signal precision is increased with investors’ effort They have not considered the loss of higher precision signal due to time delay. We quantifies the loss of signal accuracy due to production time, studies the influence of time cost on the investor’s signal precision selection, and gives the optimal waiting time of different precision signals for investors.
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