Voluntary Information Disclosure with Heterogeneous Beliefs
29 Pages Posted: 24 May 2019 Last revised: 7 Feb 2021
Date Written: June 17, 2020
We present a model in which an insider (i.e., manager or CEO) and an informed outsider (i.e., analyst or professional) have heterogeneous beliefs on their shared information about a risky asset and analyze the insider’s incentive to voluntarily disclose this information to the public. We find that, with heterogeneous beliefs, the insider and informed outsider exploit their shared information differently and this might give rise to the insider’s voluntary disclosure of this shared information to the public to seek excess profits. Specifically, the insider is more likely to release the information to the public when she has a greater relative information advantage (due to her private information) than the informed outsider and that the informed outsider is overconfident in the shared information. Our findings shed light on why some firm insiders prefer to trade against informed outsiders while others prefer to drive informed outsiders out of trading through voluntary disclosure.
Keywords: shared information; voluntary disclosure; heterogeneous beliefs
JEL Classification: D8; G1; G2
Suggested Citation: Suggested Citation