The Effect of Voluntary Disclosure on Stock Liquidity: New Evidence from Index Funds

58 Pages Posted: 6 Nov 2013 Last revised: 22 Nov 2016

See all articles by Jordan Schoenfeld

Jordan Schoenfeld

University of Utah; Dartmouth College - Tuck School of Business

Date Written: October 22, 2016


This study tests whether voluntary disclosure affects stock liquidity. I argue that index funds fit the profile of nonstrategic traders who, according to theory, are unambiguously more likely than managers and strategic investors to prefer high stock liquidity and thus high disclosure. This suggests that I can use index funds' disclosure preferences to construct an empirical model of voluntary disclosure that abstracts away from managers' strategic disclosure motives. Accordingly, I use an index-fund setting to construct a recursive structural equation model of voluntary disclosure, index fund ownership, and liquidity. I find that when a firm joins the S&P 500 index, voluntary disclosure increases with the level of ownership assumed by index funds, and this increase in disclosure is associated with increased stock liquidity. These results imply that voluntary disclosure increases stock liquidity.

Keywords: Disclosure, Index Funds, Stock Liquidity

JEL Classification: D82, G12, G14, G23, M41

Suggested Citation

Schoenfeld, Jordan and Schoenfeld, Jordan, The Effect of Voluntary Disclosure on Stock Liquidity: New Evidence from Index Funds (October 22, 2016). Journal of Accounting & Economics (JAE), 2017, 63(1), 51-74, Available at SSRN: or

Jordan Schoenfeld (Contact Author)

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

University of Utah ( email )

1645 E. Campus Center
Salt Lake City, UT 84112
United States

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