Information loss from perception alignment

This paper examines how synchronized investor perceptions of future asset returns affect market information dynamics. We introduce an empirical framework that applies information-theoretic measures, such as Kullback–Leibler and Jensen–Shannon divergences, to quantify the extent of perception alignment among investors and its impact on information loss. The findings show that heightened perception alignment increases information loss, especially during the COVID-19 pandemic. The findings emphasize our ability to measure information loss and capture shifts in investor behavior, with applications extending to various markets and events.