Financial disclosure and market transparency with costly information processing

Marco Di Maggio and Marco Pagano

No 485, CFS Working Paper Series from Center for Financial Studies (CFS)

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, issuers will oppose both the disclosure of fundamentals and trading transparency. Issuers may either under- or over-provide information compared to the socially efficient level if speculators have more bargaining power than hedgers, while they never under-provide it otherwise. When hedgers have low financial literacy, forbidding their access to the market may be socially efficient.

Keywords: disclosure; transparency; financial literacy; limited attention; OTC markets (search for similar items in EconPapers)
JEL-codes: D83 D84 G18 G38 K22 M48 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-cta, nep-mic and nep-mst
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https://www.econstor.eu/bitstream/10419/103460/1/800972244.pdf (application/pdf)

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:zbw:cfswop:485

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