Date of Award


Degree Type


Degree Name

Doctor of Philosophy (PhD)

Graduate Group


First Advisor

Catherine M. Schrand


How well do investors distinguish information that already is priced from genuinely novel and ex-

clusive private information? This paper examines whether investors misweight information that

already is in stock prices (“redundant information”) in making their trading decisions, and whether

this misweighting is associated with investors’ information processing frictions or behavioral biases. I

extend the Kyle (1985) model to allow for non-Bayesian updating and transaction costs. The model

predicts that price changes exhibit a state space process, in which the parameter for investors’ non-

Bayesian weighting of redundant information is estimable distinctly from information asymmetry

and transaction costs. Using this model, I estimate a firm-quarter measure of investors’ misweighting

of redundant information. I find that, on average, investors behave as if the information content in

the immediately prior price change is private information. This overweighting of redundant infor-

mation appears higher when investors have less time to process information, stock prices are less

informative, and industry-wide information is less costly to obtain. Overall, these results suggest

one way that information processing frictions contribute to momentum and mean reversion in stock

price returns.

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