Heterogeneous Interpretations of Public Disclosure, Price Efficiency, and Keynesian Beauty Contests

55 Pages Posted: 3 Jun 2019 Last revised: 3 Dec 2019

See all articles by Carlos Corona

Carlos Corona

Ohio State University (OSU) - Department of Accounting & Management Information Systems

Sang Wu

Carnegie Mellon University - David A. Tepper School of Business

Date Written: November 27, 2019

Abstract

This paper examines how public information about the fundamental value of a firm affects the firm’s stock price behavior and efficiency in the presence of Keynesian beauty contests when such information is heterogeneously interpreted by investors. In an overlapping generations rational expectations model of capital markets, we show that, if transparency and clarity of a public disclosure are of comparable magnitude, clarity is of first-order importance in improving price efficiency. Moreover, marginally improving transparency can be detrimental to price efficiency if the initial level of transparency is already sufficiently high.

Keywords: Keynesian, Beauty Contest, Heterogeneous Interpretations, Transparency, Clarity, Price Efficiency, Market Efficiency

JEL Classification: G12, G14, M41

Suggested Citation

Corona, Carlos and Wu, Sang, Heterogeneous Interpretations of Public Disclosure, Price Efficiency, and Keynesian Beauty Contests (November 27, 2019). Available at SSRN: https://ssrn.com/abstract=3388309 or http://dx.doi.org/10.2139/ssrn.3388309

Carlos Corona (Contact Author)

Ohio State University (OSU) - Department of Accounting & Management Information Systems ( email )

2100 Neil Avenue
Columbus, OH 43210
United States

HOME PAGE: http://https://fisher.osu.edu/people/corona.55

Sang Wu

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

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