Are Information Attributes Priced?

23 Pages Posted: 18 Dec 2013

See all articles by Christine Botosan

Christine Botosan

Financial Accounting Standards Board

Marlene Plumlee

University of Utah - School of Accounting

Multiple version iconThere are 2 versions of this paper

Date Written: November/December 2013


A seminal model in finance links cost of equity capital to information precision, composition and dissemination. Using realized returns to proxy for cost of equity capital and the probability of an informed trade (PIN) to proxy for composition, prior research documents results consistent with the model's prediction regarding composition. Nonetheless, prior research that examines the construct validity cautions against the use of future realized returns to proxy for cost of equity capital and recommend r or r instead. The authors speculate but do not demonstrate how the results in existing research might be incorrect due to their use of realized returns. This paper provides such evidence. We find that the authors inference regarding PIN is dependent on their choice of realized returns to proxy for cost of equity capital. We also estimate a more complete specification of the model that includes precision and dissemination, and we decompose PIN into its component parts to isolate that portion of PIN that varies with dissemination. These refinements allow for new insights regarding the veracity of the model's predictions. We conclude that cost of equity capital is increasing in composition, and decreasing in dissemination, and find some, albeit not conclusive support, for the prediction that cost of equity capital is decreasing in precision.

Keywords: information attributes, cost of equity capital, composition, precision, dissemination, realized returns

Suggested Citation

Botosan, Christine and Plumlee, Marlene A., Are Information Attributes Priced? (November/December 2013). Journal of Business Finance & Accounting, Vol. 40, Issue 9-10, pp. 1045-1067, 2013, Available at SSRN: or

Christine Botosan (Contact Author)

Financial Accounting Standards Board ( email )

401 Merritt 7
PO Box 5116
Norwalk, CT 06856
United States

Marlene A. Plumlee

University of Utah - School of Accounting ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

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