A Information and Portfolio Choice in General Equilibrium with Correlated Assets

This section extends the model with mean-variance preferences and an entropy learning technology by endogenizing the prices of the risky assets. In such an equilibrium model, an investor must consider the information acquisition and investment strategies of other investors. Information is a strategic substitute in this setting: Investors want to learn about assets that others are not learning about. In equilibrium, this means that ex-ante identical investors will choose to observe different signals and will hold different assets. The nature of the individual’s problem does not change. After accounting for the actions that other investors will take and how these will affect asset prices, an investor chooses one risk factor and concentrates all his capacity on learning about that one factor. A.1 Modifications to the Setup There is now a continuum of atomless investors, indexed by j ∈ [0, 1]. Preferences are mean-variance (equation 18 of the main text) and payoffs are identical to the model described in section 1 of the main text. The one change to the timing of events is that prices of the risky assets are revealed at time 2. We continue to hold the risk-free rate fixed. An equilibrium model requires two additional assumptions. First, the per capita supply of the risky asset is x̄+x, a constant plus a random (n×1) vector with known mean and variance, and zero covariance across assets: x ∼ N(0, σ2xI). This risk