Why Should Disclosure Rules Subsidize Informed Traders?
Nicholas L. Georgakopoulos
Indiana University - Robert H. McKinney School of Law
International Review of Law and Economics.
Author's description of his article: In this article I argue that disclosure rules are necessary for the market's liquidity. Disclosure is a subsidy to informed traders, which allows them to maintain greater market efficiency. This efficiency is not of equal value to all shareholders. Long term shareholders, who do not expect to liquidate their holdings frequently, have less use for disclosure than short-term holders, who expect to trade frequently. Without mandatory disclosure, the long-term holders, who do not benefit from accurate prices as much, would prefer less disclosure. Thus, disclosure rules shorten the average term for holding shares, increasing uninformed trading volume and liquidity. Uninformed trading volume and liquidity are necessary for informed trading and efficiency.
JEL Classification: G12, G14, G18Accepted Paper Series
Date posted: July 5, 1998
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