Secret and Overt Information Acquisition in Financial Markets

87 Pages Posted: 7 May 2020 Last revised: 26 Jan 2023

See all articles by Yan Xiong

Yan Xiong

The Hong Kong University of Science and Technology

Liyan Yang

University of Toronto - Rotman School of Management

Date Written: April 18, 2020

Abstract

We study the observability of investors' information-acquisition activities in financial markets. Improving observability leads to two strategic effects on information acquisition: (i) The pricing effect, which arises from interactions between investors and the market maker and can encourage or discourage information acquisition; and (ii) the competition effect, which concerns interactions amongst investors and always encourages information acquisition. We apply our theory to study voluntary and mandatory disclosures of corporate site visits. When the competition effect dominates, investors voluntarily disclose their visits. When the pricing effect dominates, mandatory disclosure is effective. Our analysis sheds novel light on Regulation Fair Disclosure.

Keywords: Information acquisition, observability, prisoner's dilemma, regulations, digital footprints

JEL Classification: D82, G14, G18

Suggested Citation

Xiong, Yan and Yang, Liyan, Secret and Overt Information Acquisition in Financial Markets (April 18, 2020). Available at SSRN: https://ssrn.com/abstract=3579214 or http://dx.doi.org/10.2139/ssrn.3579214

Yan Xiong (Contact Author)

The Hong Kong University of Science and Technology ( email )

HKUST
Kowloon
Hong Kong
Hong Kong

Liyan Yang

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

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