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Disclosures and Asset Returns

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  • Hyun Song Shin

    (London School of Economics, United Kingdom)

Abstract

Public information in financial markets often arrives through the disclosures of interested parties who have a material interest in the reactions of the market to the new information. When the strategic interaction between the sender and the receiver is formalized as a disclosure game with verifiable reports, equilibrium prices can be given a simple characterization in terms of the concatenation of binomial pricing trees. There are a number of empirical implications. The theory predicts that the return variance following a poor disclosed outcome is higher than it would have been if the disclosed outcome were good. Also, when investors are risk averse, this leads to negative serial correlation of asset returns. Other points of contact with the empirical literature are discussed. Copyright The Econometric Society 2003.

Suggested Citation

  • Hyun Song Shin, 2003. "Disclosures and Asset Returns," Econometrica, Econometric Society, vol. 71(1), pages 105-133, January.
    • Handle: RePEc:ecm:emetrp:v:71:y:2003:i:1:p:105-133
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    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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