Information Provision in a Biased Market

33 Pages Posted: 1 Mar 2019 Last revised: 6 Jan 2021

See all articles by Jordan Martel

Jordan Martel

Indiana University Bloomington, Kelley School of Business

Jan Schneemeier

Indiana University - Kelley School of Business - Department of Finance

Date Written: February 10, 2019

Abstract

A vast literature considers disagreements amongst traders about firm value. Of equal importance, however, are the disagreements between traders and firm management. In this paper, we investigate a manager's incentives to disclose information to traders who are more (or less) optimistic. Traders overweight disclosures that confirm their existing priors. Paradoxically, managers may disclose more information to traders who already believe that the firm's value is high, exacerbating mis-pricing of the firm's stock. We also find that managerial myopia might lead to more information disclosure and that it strictly exacerbates mis-pricing.

Keywords: information disclosure, price efficiency, behavioral finance.

JEL Classification: G14, G41.

Suggested Citation

Martel, Jordan and Schneemeier, Jan, Information Provision in a Biased Market (February 10, 2019). Kelley School of Business Research Paper No. 19-17, Available at SSRN: https://ssrn.com/abstract=3332016 or http://dx.doi.org/10.2139/ssrn.3332016

Jordan Martel (Contact Author)

Indiana University Bloomington, Kelley School of Business ( email )

1275 E 10th St
Hodge Hall
Bloomington, IN 47405
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HOME PAGE: http://www.jordanmartel.com

Jan Schneemeier

Indiana University - Kelley School of Business - Department of Finance ( email )

1275 E 10th St
Bloomington, IN 47405
United States

HOME PAGE: http://www.jan-schneemeier.com

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