Efficiency Costs Fairness: Resolving Financial Market Rumors through Public Inquiries

47 Pages Posted: 17 Aug 2013 Last revised: 9 Oct 2018

Date Written: September 27, 2018

Abstract

Should regulators require firms to confirm or deny rumours publicly? In a sequential trading model, such a regulation might enhance pricing efficiency through two mechanisms: (i) an increase to the number of informed traders brought about by the public inquiry, and (ii) a shortened information advantage period. However, data from rumour-disclosure events on the Korea Exchange show that such regulations reduce fairness: informed traders earn higher profits than in the absence of the regulation due to an increase in noise trading and false alerts. Rumour disclosure alerts investors about uncertain information that creates investors' attention and leads to unintended consequences.

Keywords: Market microstructure, Rumor, Inquiry disclosure

JEL Classification: D82, G10, G14, G18

Suggested Citation

Park, Seongkyu, Efficiency Costs Fairness: Resolving Financial Market Rumors through Public Inquiries (September 27, 2018). 26th Australasian Finance and Banking Conference 2013. Available at SSRN: https://ssrn.com/abstract=2310932 or http://dx.doi.org/10.2139/ssrn.2310932

Seongkyu Park (Contact Author)

Hong Kong Polytechnic University ( email )

M850, Li Ka Shing Tower
The Hong Kong Polytechnic University
Hung Hom, Kowloon
Hong Kong
+852 2766 4073 (Phone)

HOME PAGE: http://https://sites.google.com/site/skgilbertpark/

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