Information Choice in Financial Markets

The decision process of an investor who must screen information of varying quality in a stock market with heterogeneous investors leads to new dimensions to consider in the risk-return space. More volatile forecast errors make it more difficult to properly form expectations from forecasts. Investors search among several options to choose the reports that provide them the highest value. I find that the rational informed investor with a searching rule, incorporates both the news about an asset as well as the consistency or volatility of these news, and for two options with the same signal, he prefers the one with the most consistency.