Who Wants to Be Informed — Less Risk Aversion or More Risk Aversion?*

Abstract

Information is an important issue in financial markets since information advantage leads to increased profits. This paper investigates whether those with less risk aversion or more risk aversion would like to be informed when there is private information which can be acquired for a certain cost. The CARA utility function and normal return assumptions were used to get the closed form solution of the absolute risk aversion coefficient which is indifferent to whether a person wants to be informed, which shows that the less risk aversion investor would like to be informed. The results further show that in financial markets, those people with lower risk aversion (for instance, institutional investors) are more favorable to information and price discovery of risky assets, which is consistent with intuition as well as empirical studies.