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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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    References listed on IDEAS

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    1. McNichols, Maureen & Trueman, Brett, 1994. "Public disclosure, private information collection, and short-term trading," Journal of Accounting and Economics, Elsevier, vol. 17(1-2), pages 69-94, January.
    2. Lee, Charles M. C., 1992. "Earnings news and small traders : An intraday analysis," Journal of Accounting and Economics, Elsevier, vol. 15(2-3), pages 265-302, August.
    3. Anat R. Admati, Paul Pfleiderer, 1988. "A Theory of Intraday Patterns: Volume and Price Variability," The Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 3-40.
    4. Froot, Kenneth A & Scharftstein, David S & Stein, Jeremy C, 1992. "Herd on the Street: Informational Inefficiencies in a Market with Short-Term Speculation," Journal of Finance, American Finance Association, vol. 47(4), pages 1461-1484, September.
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