Does Public News Decrease Information Asymmetries? Evidence from the Weekly Petroleum Status Report

Julio A. Crego ()
Additional contact information
Julio A. Crego: Tilburg University, https://www.tilburguniversity.edu

Working Papers from CEMFI

Abstract: I argue that the arrival of a public signal, regardless of its content, can yield an increase in adverse selection costs in financial markets. To explain its occurrence, I propose a dynamic model with a public signal and risk-averse informed investors. In this set-up, the public signal induces informed investors to participate in the market as it reduces uncertainty. While it increases adverse selection costs, the increase in participation results in more informative prices. Apart from the static effects, the model's dynamics deliver testable hypotheses about price and liquidity before and after the signal's release. Using transaction-level data, I estimate the effect of the release of the Weekly Petroleum Status Report on the bid-ask spread, volume, and midpoint returns via a difference-in-difference strategy. I find that the mean bid-ask spread doubles immediately after the release and that volume increases by 32 percent. Moreover, this effect persists over time, and is independent of the report's content whereas prices react to this information immediately. Nevertheless, liquidity at the end of the trading session is not affected by the report.

Keywords: Public information; news release; asymmetric information; liquidity. (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2017-11
New Economics Papers: this item is included in nep-cfn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.cemfi.es/ftp/wp/1714.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cmf:wpaper:wp2017_1714

Access Statistics for this paper

More papers in Working Papers from CEMFI Contact information at EDIRC.
Bibliographic data for series maintained by Araceli Requerey ().