Leveling the Informational Playing Field

31 Pages Posted: 30 Jan 2003

See all articles by Orie E. Barron

Orie E. Barron

Pennsylvania State University

Donal Byard

City University of New York - Stan Ross Department of Accountancy

Charles R. Enis

Pennsylvania State University - Smeal College of Business

Date Written: December 2002

Abstract

This study uses experimental data to compare the information generated by professional and nonprofessional investors when both groups receive access to the same financial disclosures. We also manipulate the disclosure level for both subject groups. Using the method developed by Barron, Kim, Lim and Stevens (1998), we then analyze the information contained in stock price forecasts that were made by the experimental subjects. Professionals generally possessed more information than nonprofessionals. The higher level of disclosure did not affect the information possessed by the professional investors. However, we find that a higher level of disclosure is associated with more private information being produced (or inferred) by nonprofessional investors. As a result, these subjects realized a significant improvement in the accuracy of their mean forecasts relative to their individual forecasts. This finding suggests that the enhanced capacity of firms to widely disclose information to all market participants via the Internet, together with the SEC's new "Fair Disclosure (FD)" regulation, has the potential to produce a significant increase in privately inferred information for on-line nonprofessionals, potentially resulting in the aggregation of more diverse information into share prices.

Keywords: Regulation FD, BKLS Framework, Nonprofessional Traders, Consensus, Forecast Aggregation

JEL Classification: G12, G29, M41, M45

Suggested Citation

Barron, Orie E. and Byard, Donal and Enis, Charles R., Leveling the Informational Playing Field (December 2002). Available at SSRN: https://ssrn.com/abstract=362400 or http://dx.doi.org/10.2139/ssrn.362400

Orie E. Barron

Pennsylvania State University ( email )

University Park, PA 16802-3306
United States
814-863-3230 (Phone)
814-863-8393 (Fax)

Donal Byard (Contact Author)

City University of New York - Stan Ross Department of Accountancy ( email )

One Bernard Baruch Way, Box B12-225
New York, NY 10010
United States
646-312-3187 (Phone)
646-312-3161 (Fax)

Charles R. Enis

Pennsylvania State University - Smeal College of Business ( email )

203 Beam Building
University Park, PA 16802
United States

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