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Information Disclosure, Intertemporal Risk Sharing, and Asset Prices

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Author Info

  • Tri Vi Dang

    ()
    (Yale University, Department of Economics)

  • Hendrik Hakenes

    ()
    (Institute of Financial Economics, Leibniz University Hannover)

Abstract

Disclosure of information triggers immediate price movements, but it mitigates price movements at a later date, when the information would otherwise have become public. Consequently, disclosure shifts risk from later cohorts of investors to earlier cohorts. Hence, disclosure policy can be interpreted as a tool to “control” interim asset price movements, and to allocate risk intertemporally. This paper shows that a policy of partial disclosure (and, hence, of intertemporal risk sharing) can maximize, but surprisingly also minimize, the market value of the firm. Our model also applies to a setting where a central bank chooses the quality and frequency of the disclosure of macroeconomic information, or to the precision of disclosure by (distressed) banks.

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Bibliographic Info

Paper provided by Max Planck Institute for Research on Collective Goods in its series Working Paper Series of the Max Planck Institute for Research on Collective Goods with number 2010_36.

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Date of creation: Sep 2010
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Handle: RePEc:mpg:wpaper:2010_36

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Related research

Keywords: Financial reporting; disclosure; information policy; asset pricing; intertemporal risk sharing; general equilibrium;

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