Speculation with Information Disclosure
98 Pages Posted: 6 Oct 2016 Last revised: 28 Mar 2022
Date Written: March 17, 2022
Sophisticated investors frequently choose to publicly disclose private information, a phenomenon inconsistent with most theories of speculation. We propose and test a model to bridge this gap. We show that when a speculator cares about both short-term portfolio value and long-term profit, a disclosure mixing asset fundamentals and her holdings is optimal by inducing competitive dealership to revise prices toward those holdings while alleviating adverse selection. We find that when mutual fund managers have stronger short-term incentives, the frequency of strategic non-anonymous disclosures about their stocks by market-worthy newspaper articles increases and those stocks’ liquidity improves, consistent with our model.
Keywords: Liquidity, Market Depth, Trading, Disclosure, Private Information, Mutual Funds
JEL Classification: D82, G14, G23
Suggested Citation: Suggested Citation