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Precision of Investor Information and Financial Disclosure

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  • Liang, Woan-lih
  • Lin, Hsiou-wei W.
  • Syu, Yir-Jung
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    Abstract

    This study investigates a situation in which the precision of an inside investor's private signal increases with the size of his shareholding. Intuitively, an insider with a more informative signal regarding the prospects of a project may be expected to involve himself in larger information-motivated transactions and enjoy greater profits. We suggest that such an advantage, nevertheless, may be alleviated or even eliminated when the financial statements accompanied by disclosure of either his shareholdings or the distribution of block shareholdings reveal the extent to which the insider is informed. The market may optimize its reaction to the order flows accordingly.

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    Bibliographic Info

    Article provided by Elsevier in its journal International Review of Economics & Finance.

    Volume (Year): 19 (2010)
    Issue (Month): 4 (October)
    Pages: 627-632

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    Handle: RePEc:eee:reveco:v:19:y:2010:i:4:p:627-632

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    Web page: http://www.elsevier.com/locate/inca/620165

    Related research

    Keywords: Information precision Insider trading Financial disclosure Noisy rational expectation;

    References

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    1. Diamond, Douglas W & Verrecchia, Robert E, 1991. " Disclosure, Liquidity, and the Cost of Capital," Journal of Finance, American Finance Association, vol. 46(4), pages 1325-59, September.
    2. Hayne E. Leland., 1990. "Insider Trading: Should It Be Prohibited?," Research Program in Finance Working Papers RPF-195, University of California at Berkeley.
    3. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November.
    4. Vo, Minh T., 2008. "Strategic trading when some investors receive information before others," International Review of Economics & Finance, Elsevier, vol. 17(2), pages 319-332.
    5. Sudipto Bhattacharya, 2001. "Insider Trading, Investment, and Liquidity: A Welfare Analysis," Journal of Finance, American Finance Association, vol. 56(3), pages 1141-1156, 06.
    6. Fidrmucova, J. & Goergen, M. & Renneboog, L.D.R., 2005. "Insider Trading, News Releases and Ownership Concentration," Discussion Paper 2005-025, Tilburg University, Tilburg Law and Economic Center.
    7. Jaffe, Jeffrey F, 1974. "Special Information and Insider Trading," The Journal of Business, University of Chicago Press, vol. 47(3), pages 410-28, July.
    8. Repullo, Rafael, 1999. "Some Remarks on Leland's Model of Insider Trading," Economica, London School of Economics and Political Science, vol. 66(263), pages 359-74, August.
    9. Ma, Yulong & Sun, Huey-Lian & Tang, Alex P., 2009. "Do insiders have inside tracks: An examination of Wall Street Journal's Inside Track columns?," International Review of Economics & Finance, Elsevier, vol. 18(3), pages 520-530, June.
    10. Wang, Leonard F.S. & Wang, Ya-Chin & Ren, Shuang, 2009. "Stackelberg financial-leader in insider trading model," International Review of Economics & Finance, Elsevier, vol. 18(1), pages 123-131, January.
    11. Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
    12. Diamond, Douglas W. & Verrecchia, Robert E., 1981. "Information aggregation in a noisy rational expectations economy," Journal of Financial Economics, Elsevier, vol. 9(3), pages 221-235, September.
    13. Subrahmanyam, Avanidhar, 1991. "Risk Aversion, Market Liquidity, and Price Efficiency," Review of Financial Studies, Society for Financial Studies, vol. 4(3), pages 416-41.
    14. Verrecchia, Robert E, 1982. "Information Acquisition in a Noisy Rational Expectations Economy," Econometrica, Econometric Society, vol. 50(6), pages 1415-30, November.
    15. Huddart, Steven & Hughes, John S & Levine, Carolyn B, 2001. "Public Disclosure and Dissimulation of Insider Trades," Econometrica, Econometric Society, vol. 69(3), pages 665-81, May.
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    Cited by:
    1. Wassim Daher & Harun Aydilek & Fida Karam & Asiye Aydilek, 2014. "Insider trading with product differentiation," Journal of Economics, Springer, vol. 111(2), pages 173-201, March.
    2. Grégoire, Philippe & Huang, Hui, 2012. "Information disclosure with leakages," Economic Modelling, Elsevier, vol. 29(5), pages 2005-2010.

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