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Public Information and Unknown Capital Market Participants

23 Pages Posted: 12 Sep 2011  

Christian Hofmann

Ludwig Maximilian University of Munich - Faculty of Business Administration (Munich School of Management)

Andreas Loeffler

Freie Universität Berlin

Date Written: May 30, 2011

Abstract

We consider a single-period, pure-exchange setting with a single trading date and a single consumption date. Investors are uncertain about the risk aversion of the other investors participating in the capital market, implying that the market’s aggregate risk aversion is a random variable. Unlike the setting where investors are fully informed about the market’s aggregate risk aversion, we find that investors can have a strict preference for releasing public information prior to trading. In particular, we identify conditions under which the information risk problem does not arise. Our study complements other research into the source of value for publicly reported accounting information.

Keywords: public information, equilibrium, unkown risk aversion

JEL Classification: D81, G14

Suggested Citation

Hofmann, Christian and Loeffler, Andreas, Public Information and Unknown Capital Market Participants (May 30, 2011). Available at SSRN: https://ssrn.com/abstract=1926245 or http://dx.doi.org/10.2139/ssrn.1926245

Christian Hofmann

Ludwig Maximilian University of Munich - Faculty of Business Administration (Munich School of Management) ( email )

Kaulbachstr. 45
Munich, 80539
Germany

Andreas Loeffler (Contact Author)

Freie Universität Berlin ( email )

Boltzmannstr. 20
Berlin, 14195
Germany

HOME PAGE: http://www.andreasloeffler.de

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