Why Do Large Investors Disclose Their Information?

Abstract

Large investors often advertise private information at private talks or in the media. To analyse the incentives for information disclosure, I develop a two-period Kyle (1985) type model in which an informed short-horizon investor strategically discloses private information to enhance price efficiency. I show that information disclosure is optimal when the scope of private information is large and when the large investor has a high reputation. Short investment horizons induce information disclosure among investors and are beneficial for price efficiency. However, strategic information disclosure reduces trading before disclosure and harms price discovery.

Keywords: Information Disclosure, Price Discovery, Asymmetric Information, Market Microstructure

JEL Classification: G12, G14