 Rational Transparency Choice in Financial Market Equilibrium¤University of California at San Diego, Economics Working Paper Series from Department of Economics, UC San Diego Abstract: Add a stage of signal acquisition to a canonical model of portfolio choice.Under fully revealing asset price, investors' information demand reflects their choice of transparency. In reducing uncertainty, financial transparency raises expected asset price and thus benefits holders of the risky asset. At a natural transparency limit, however, investors pay to inhibit further disclosure in order to forestall the erosion of the asset's expected excess return. The natural transparency limit varies with the portfolio position. There is a dominant investor with a risky asset endowment modestly above market average who single-handedly determines transparency in equilibrium. The dominant investor strictly improves welfare for investors with similar endowments but strictly reduces welfare for others when acquiring signals beyond their natural transparency limits. The welfare consequences of financial transparency are thus intricately linked to the wealth distribution. Keywords: Information acquisition; rational expectations equilibrium; fully revealing asset price; ¯nancial transparency; disclosure; gamma distributed asset returns; Poisson distributed signals (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:cdl:ucsdec:qt73h8z1hd Access Statistics for this paper More papers in University of California at San Diego, Economics Working Paper Series from Department of Economics, UC San Diego Contact information at EDIRC. |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.