Paradox of Public Information Disclosure in the Presence of an Asset Market

Seongkyun Kim and Myungkyu Shim
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Seongkyun Kim: Yonsei University

No 2025rwp-244, Working papers from Yonsei University, Yonsei Economics Research Institute

Abstract: When financial market collapses, policymakers tend to disclose more public information to traders (e.g., more frequent communication with public) in order to reduce uncertainty surrounding the market and thus revive demand for risky assets. Can such a disclosure policy achieve its objective? In order to address this issue, we augment an exogenous public signal to the model of Angeletos and Werning (2006) and Rondina and Shim (2015) so that both exogenous and endogenous public information coexist. After proving that there exist equilibria in our model economy, we show that provision of more precise exogenous public information to traders in turn can reduce the informativeness of the endogenous public signal (asset price), especially when such a policy is necessary.

Keywords: Information disclosure; Dispersed information; Asset market; Rational equilibrium (search for similar items in EconPapers)
JEL-codes: D80 G12 G14 (search for similar items in EconPapers)
Pages: 20pages
Date: 2025-04
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