Information Disclosure, Intertemporal Risk Sharing, and Asset Prices

32 Pages Posted: 2 Sep 2010

See all articles by Tri Vi Dang

Tri Vi Dang

Columbia University - Department of Economics

Hendrik Hakenes

Finance Group; Centre for Economic Policy Research (CEPR)

Date Written: September 1, 2010

Abstract

Disclosure of information triggers immediate price movements, but it mitigates price movements at a later date, when the information would otherwise have become public. Consequently, disclosure shifts risk from later cohorts of investors to earlier cohorts. Hence, disclosure policy can be interpreted as a tool to “control” interim asset price movements, and to allocate risk intertemporally. This paper shows that a policy of partial disclosure (and, hence, of intertemporal risk sharing) can maximize, but surprisingly also minimize, the market value of the firm. Our model also applies to a setting where a central bank chooses the quality and frequency of the disclosure of macroeconomic information, or to the precision of disclosure by (distressed) banks.

Keywords: Financial Reporting, Disclosure, Information Policy, Asset Pricing, Intertemporal Risk Sharing, General Equilibrium

JEL Classification: G14, D92, M41

Suggested Citation

Dang, Tri Vi and Hakenes, Hendrik, Information Disclosure, Intertemporal Risk Sharing, and Asset Prices (September 1, 2010). MPI Collective Goods Preprint No. 2010/36, Available at SSRN: https://ssrn.com/abstract=1670710 or http://dx.doi.org/10.2139/ssrn.1670710

Tri Vi Dang

Columbia University - Department of Economics ( email )

420 West 118th Street
New York, NY 10027
United States

Hendrik Hakenes (Contact Author)

Finance Group ( email )

Adenauerallee 24-42
D-53113 Bonn
Germany
+49-228-73-9225 (Phone)

HOME PAGE: http://www.finance.uni-bonn.de/hakenes

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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