Financial Disclosure and Market Transparency with Costly Information Processing

Marco Pagano and Marco Di Maggio

No 9207, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study a model where some investors (?hedgers?) are bad at information processing, while others (?speculators?) have superior information-processing ability and trade purely to exploit it. The disclosure of financial information induces a trade externality: if speculators refrain from trading, hedgers do the same, depressing the asset price. Market transparency reinforces this mechanism, by making speculators? trades more visible to hedgers. As a consequence, asset sellers will oppose both the disclosure of fundamentals and trading transparency. This is socially inefficient if a large fraction of market participants are speculators and hedgers have low processing costs. But in these circumstances, forbidding hedgers? access to the market may dominate mandatory disclosure.

Keywords: Financial disclosure; Market transparency; Information processing; Rational inattention; Liquidity (search for similar items in EconPapers)
JEL-codes: D83 D84 G18 G38 K22 M48 (search for similar items in EconPapers)
Date: 2012-11
New Economics Papers: this item is included in nep-cba, nep-cta and nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Financial Disclosure and Market Transparency with Costly Information Processing* (2018)
Working Paper: Financial Disclosure and Market Transparency with Costly Information Processing (2016)
Working Paper: Financial Disclosure and Market Transparency with Costly Information Processing (2014)
Working Paper: Financial disclosure and market transparency with costly information processing (2014)
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