The paper by Easley and O'Hara explores the impact of information on a firm's cost of capital, focusing on the roles of public and private information. They argue that the composition of information affects the cost of capital, with investors demanding higher returns for stocks with more private information. The authors develop a multi-asset rational expectations equilibrium model that includes both informed and uninformed investors, and public and private information. The model demonstrates that the quantity and quality of information influence asset prices and cross-sectional differences in required returns. Key findings include: 1. **Information Structure and Cost of Capital**: The cost of capital is influenced by the information structure of a firm's securities. Firms with more private information face a higher cost of capital. 2. **Public vs. Private Information**: Public information reduces the risk to uninformed traders, while private information increases it. This leads to uninformed traders holding more of stocks with bad news and less of stocks with good news. 3. **Equilibrium Returns**: The expected return per share for a stock depends on the per capita supply, agents' risk preferences, and the information structure. The required return is higher for stocks with more private information. 4. **Numerical Example**: A numerical example illustrates the magnitude of the effect of changing the fraction of public information from 50% to 60%, showing a 7.5% change in the risk premium. 5. **Mean-Variance Efficiency**: The market portfolio is mean-variance efficient for average beliefs, but it is not optimal for any individual investor. The average market portfolio underperforms the optimal portfolio for uninformed investors. 6. **Informed and Uninformed Portfolios**: Informed investors hold more of the risky asset on average, and their holdings are more responsive to signals. This leads to a larger difference in holdings between informed and uninformed investors. 7. **Information Disclosure**: Firms can lower their cost of capital by increasing the dispersion of private information or improving the quality of public information. Disclosures and analyst coverage are shown to reduce the cost of capital. The paper provides a theoretical framework and empirical implications, highlighting the complex role of information in financial markets and corporate finance.The paper by Easley and O'Hara explores the impact of information on a firm's cost of capital, focusing on the roles of public and private information. They argue that the composition of information affects the cost of capital, with investors demanding higher returns for stocks with more private information. The authors develop a multi-asset rational expectations equilibrium model that includes both informed and uninformed investors, and public and private information. The model demonstrates that the quantity and quality of information influence asset prices and cross-sectional differences in required returns. Key findings include: 1. **Information Structure and Cost of Capital**: The cost of capital is influenced by the information structure of a firm's securities. Firms with more private information face a higher cost of capital. 2. **Public vs. Private Information**: Public information reduces the risk to uninformed traders, while private information increases it. This leads to uninformed traders holding more of stocks with bad news and less of stocks with good news. 3. **Equilibrium Returns**: The expected return per share for a stock depends on the per capita supply, agents' risk preferences, and the information structure. The required return is higher for stocks with more private information. 4. **Numerical Example**: A numerical example illustrates the magnitude of the effect of changing the fraction of public information from 50% to 60%, showing a 7.5% change in the risk premium. 5. **Mean-Variance Efficiency**: The market portfolio is mean-variance efficient for average beliefs, but it is not optimal for any individual investor. The average market portfolio underperforms the optimal portfolio for uninformed investors. 6. **Informed and Uninformed Portfolios**: Informed investors hold more of the risky asset on average, and their holdings are more responsive to signals. This leads to a larger difference in holdings between informed and uninformed investors. 7. **Information Disclosure**: Firms can lower their cost of capital by increasing the dispersion of private information or improving the quality of public information. Disclosures and analyst coverage are shown to reduce the cost of capital. The paper provides a theoretical framework and empirical implications, highlighting the complex role of information in financial markets and corporate finance.