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Information Asymmetry, Investment Horizons, and the Dual Role of Public Announcements

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  • Gilad Livne

    (London Business School)

Abstract

This paper investigates inter-temporal relations in market liquidity and price efficiency in a setting that is more descriptive of trading patterns around public announcements than those typically analyzed in the existing literature. The model incorporates both strategic investors who behave as short-term, profit-taking traders, and traders who invest in the security over a long-term horizon. It is shown that an anticipated increase in market liquidity in the announcement period will lead short-term investors to trade more aggressively in the pre-announcement period. This results in improved price efficiency and, in some cases, increased market liquidity in the pre-announcement period. However, a higher propensity to behave as a profit-taker in the announcement period leads to less efficient prices in the pre-announcement period.

Suggested Citation

  • Gilad Livne, 2000. "Information Asymmetry, Investment Horizons, and the Dual Role of Public Announcements," Review of Accounting Studies, Springer, vol. 5(2), pages 127-153, June.
    • Handle: RePEc:spr:reaccs:v:5:y:2000:i:2:d:10.1023_a:1009600707097
    DOI: 10.1023/A:1009600707097
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