Good Disclosure, Bad Disclosure
AFA 2016 Annual Meetings
66 Pages Posted: 2 Feb 2014 Last revised: 21 Nov 2017
Date Written: October 1, 2017
We study real-efficiency implications of disclosing public information in a model with multiple dimensions of uncertainty where market prices convey information to a real decision maker. Paradoxically, when disclosure is about a variable that the real decision maker cares to learn, disclosure harms price informativeness, and in markets which are effective in aggregating private information, this negative price-informativeness effect can dominate so that better disclosure harms real efficiency. When disclosure is about a variable that the real decision maker already knows much, disclosure always improves price informativeness and real efficiency. Our analysis has important empirical and policy implications for different contexts such as disclosure of stress-test information and regulation of credit ratings.
Keywords: Disclosure, price informativeness, learning, real efficiency
JEL Classification: D61, G14, G30, M41
Suggested Citation: Suggested Citation