Information Asymmetry, Investment Horizons, and the Dual Role of Public Announcements

Gilad Livne
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Gilad Livne: London Business School

Review of Accounting Studies, 2000, vol. 5, issue 2, No 2, 127-153

Abstract: Abstract This paper investigates inter-temporal relations in market liquidity and price efficiency in a setting that is more descriptive of trading patterns around public announcements than those typically analyzed in the existing literature. The model incorporates both strategic investors who behave as short-term, profit-taking traders, and traders who invest in the security over a long-term horizon. It is shown that an anticipated increase in market liquidity in the announcement period will lead short-term investors to trade more aggressively in the pre-announcement period. This results in improved price efficiency and, in some cases, increased market liquidity in the pre-announcement period. However, a higher propensity to behave as a profit-taker in the announcement period leads to less efficient prices in the pre-announcement period.

Keywords: Information Asymmetry; Dual Role; High Propensity; Trading Pattern; Public Announcement (search for similar items in EconPapers)
Date: 2000
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DOI: 10.1023/A:1009600707097

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