Public Disclosures and Information Asymmetry: A Theory of the Mosaic

Forthcoming, The Accounting Review

46 Pages Posted: 22 Apr 2019

See all articles by Edwige Cheynel

Edwige Cheynel

University of California, San Diego (UCSD) - Rady School of Management

Carolyn Levine

University of Delaware

Date Written: March 22, 2019

Abstract

We model an information mosaic in which multiple signals, one gathered by an informed trader and the other publicly disclosed by the manager of the firm, are combined to estimate firm value. Under testable conditions, voluntary disclosures lead to higher ex-ante information asymmetry and expected profits for the informed trader by allowing him to refine his trading strategy and complete his information mosaic. The informed trader’s ability to combine information and enhance his advantage is more prevalent when there is more uncertainty about whether the news is favorable or unfavorable, the manager is more likely to be informed, and the manager’s information is precise (i.e., disclosure quality is high).

Keywords: mosaic, informed trading, disclosure, information asymmetry

JEL Classification: G14, D82, M48

Suggested Citation

Cheynel, Edwige and Levine, Carolyn, Public Disclosures and Information Asymmetry: A Theory of the Mosaic (March 22, 2019). Forthcoming, The Accounting Review. Available at SSRN: https://ssrn.com/abstract=3358579 or http://dx.doi.org/10.2139/ssrn.3358579

Edwige Cheynel (Contact Author)

University of California, San Diego (UCSD) - Rady School of Management ( email )

Carolyn Levine

University of Delaware ( email )

42 Amstel Ave
Newark, DE 19716
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
55
rank
363,800
Abstract Views
270
PlumX Metrics