Abstract
We offer a simple, intuitive and empirically useful expression quantifying the value of asset-specific information to a strategic trader. The value of information reflects the ratio of return volatility to price impact measured using a version of Kyle's lambda. While volatility and illiquidity are highly correlated, their ratio fluctuates markedly giving rise to considerable variation in the value of information over time and across stocks. Using high frequency data on US stocks, we find that the value of information rises dramatically during crises and on earnings announcement days, and falls at calendar year ends. Furthermore, the value of information is higher for large, growth, and momentum stocks. The most dramatic spikes in the value of information occur at the start of the COVID-19 pandemic and the financial crisis of 2008, when the Fed announces novel liquidity facilities. Such policy interventions aimed at improving liquidity may unintentionally increase the private incentives to collect information.
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