Disclosures and Asset Returns

39 Pages Posted: 4 Jun 2002

See all articles by Hyun Song Shin

Hyun Song Shin

Bank for International Settlements (BIS)

Date Written: April 2002


Public information in financial markets often arrives through the disclosures of interested parties who have a material interest in the reactions of the market to the new information. When the strategic interaction between the sender and the receiver is formalized as a disclosure game with verifiable reports, equilibrium prices can be given a simple characterization in terms of the concatenation of binomial pricing trees. There are a number of empirical implications. The theory predicts that the return variance following a poor disclosed outcome is higher than it would have been if the disclosed outcome were good. Also, when investors are risk averse, this leads to negative serial correlation of asset returns. Other points of contact with the empirical literature are discussed.

Keywords: Binomial trees, disclosure games, residual uncertainty

JEL Classification: D82, G12

Suggested Citation

Shin, Hyun Song, Disclosures and Asset Returns (April 2002). CEPR Discussion Paper No. 3345. Available at SSRN: https://ssrn.com/abstract=315039

Hyun Song Shin (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002

HOME PAGE: http://www.bis.org/author/hyun_song_shin.htm

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