Security Prices and Market Transparency

Posted: 14 Sep 1999


Many recommendations for reforming securities market are predicated on the belief that providing information on order flow and other market variables to traders (i.e., increasing market transparency) will increase liquidity and improve price efficiency. This paper demonstrates that market transparency can actually increase price volatility and lower market liquidity. This occurs even though transparency increases the precision of traders' predictions about the asset's value. In a sufficiently large market, transparency always reduces volatility and improves market quality. We use these results to assess policy proposals concerning the disclosure of trading information.

JEL Classification: G14

Suggested Citation

Madhavan, Ananth, Security Prices and Market Transparency. Available at SSRN:

Ananth Madhavan (Contact Author)

BlackRock, Inc. ( email )

400 Howard Street
San Francisco, CA 94105
United States

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