Do Information Releases Increase or Decrease Information Asymmetry? New Evidence from Analyst Forecast Announcements

46 Pages Posted: 20 Sep 2012 Last revised: 28 May 2016

See all articles by Dan Amiram

Dan Amiram

Tel Aviv University - Coller School of Management

Edward Owens

University of Utah - David Eccles School of Business

Oded Rozenbaum

George Washington University - School of Business

Date Written: May 6, 2016

Abstract

We use analyst earnings forecasts as a setting to examine a fundamental question concerning the effect of a public information release on announcement-period information asymmetry. Prior literature documents an announcement-period increase in information asymmetry for earnings announcements and management forecasts. In contrast, we predict and document an announcement-period decrease in information asymmetry for analyst forecasts. This decrease in information asymmetry at announcement is more pronounced when forecasts have greater information content. Predictably, there is a longer-term decrease in information asymmetry after all three information release types. Although the directionally opposite effects between analyst forecasts and the other two information releases exist only temporarily during the short-window announcement period, our findings highlight key differences in announcement-period information asymmetry dynamics and provide evidence that supports extant disclosure theory. Our evidence demonstrates that the directional effect of an information release on information asymmetry at announcement depends on how the information interacts with prior information held by sophisticated and unsophisticated investors.

Keywords: Information Asymmetry, Analyst forecasts

JEL Classification: G14, M40, M41

Suggested Citation

Amiram, Dan and Owens, Edward and Rozenbaum, Oded, Do Information Releases Increase or Decrease Information Asymmetry? New Evidence from Analyst Forecast Announcements (May 6, 2016). Columbia Business School Research Paper No. 12/54. Available at SSRN: https://ssrn.com/abstract=2149259 or http://dx.doi.org/10.2139/ssrn.2149259

Dan Amiram

Tel Aviv University - Coller School of Management ( email )

Tel Aviv
Israel

Edward Owens (Contact Author)

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States
8015815732 (Phone)

Oded Rozenbaum

George Washington University - School of Business ( email )

Washington, DC 20052
United States
202-994-5992 (Phone)

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