Disclosures and Asset Returns

Hyun Song Shin

No 3345, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Public information in financial markets often arrives through the disclosures of interested parties who have a material interest in the reactions of the market to the new information. When the strategic interaction between the sender and the receiver is formalized as a disclosure game with verifiable reports, equilibrium prices can be given a simple characterization in terms of the concatenation of binomial pricing trees. There are a number of empirical implications. The theory predicts that the return variance following a poor disclosed outcome is higher than it would have been if the disclosed outcome were good. Also, when investors are risk averse, this leads to negative serial correlation of asset returns. Other points of contact with the empirical literature are discussed.

Keywords: Disclosure games; Residual uncertainty; Binomial trees (search for similar items in EconPapers)
JEL-codes: D82 G12 (search for similar items in EconPapers)
Date: 2002-04
New Economics Papers: this item is included in nep-cfn and nep-rmg
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Journal Article: Disclosures and Asset Returns (2003)
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Working Paper: Disclosures and Asset Returns (2001)
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