Speculation with Information Disclosure

98 Pages Posted: 6 Oct 2016 Last revised: 28 Mar 2022

See all articles by Paolo Pasquariello

Paolo Pasquariello

University of Michigan, Stephen M. Ross School of Business

Yifei Wang

University of Michigan, Department of Finance

Date Written: March 17, 2022

Abstract

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

Pasquariello, Paolo and Wang, Yifei, Speculation with Information Disclosure (March 17, 2022). Available at SSRN: https://ssrn.com/abstract=2847321 or http://dx.doi.org/10.2139/ssrn.2847321

Paolo Pasquariello (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

709 Tappan Street
Room R4434
Ann Arbor, MI 48109
United States
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HOME PAGE: http://webuser.bus.umich.edu/ppasquar/

Yifei Wang

University of Michigan, Department of Finance ( email )

Ann Arbor, MI
United States

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