Financial Disclosure and Market Transparency with Costly Information Processing

Marco Di Maggio and Marco Pagano

No 1212, EIEF Working Papers Series from Einaudi Institute for Economics and Finance (EIEF)

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 fi nancial 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, issuers 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.

Pages: 51 pages
Date: 2012, Revised 2014-05
New Economics Papers: this item is included in nep-cba and nep-cta
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Citations: View citations in EconPapers (3)

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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 (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eie:wpaper:1212

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