Department of Economics, UCSD

Give a risk neutral investor the choice to acquire a costly signal prior to Walrasian asset market equilibrium. She refuses to pay for the signal. The reason is that a risk neutral investor is indifferent between a risky stock or a safe bond in equilibrium and expects the same return to her portfolio ex ante, whether or not she acquires information. Risk neutral asset pricing thus implies the absence of costly information from asset price,unless non-Walrasian market conditions prevail. Non-Walrasian market conditions, however, get reflected in price beyond the asset's fundamental payoff value.