Financial Disclosure and Market Transparency with Costly Information Processing
Marco Di Maggio and
Marco Pagano
CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy
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.
Date: 2012-10-23, Revised 2016-07-23
New Economics Papers: this item is included in nep-cta, nep-mic and nep-mst
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Citations:
Forthcoming in Review of Finance
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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 (2014) 
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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