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The Sound of Silence: equilibrium filtering and optimal censoring in financial markets

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  • Miles B. Gietzmann
  • Adam J. Ostaszewski

Abstract

Following the approach of standard filtering theory, we analyse investor-valuation of firms, when these are modelled as geometric-Brownian state processes that are privately and partially observed, at random (Poisson) times, by agents. Tasked with disclosing forecast values, agents are able purposefully to withhold their observations; explicit filtering formulas are derived for downgrading the valuations in the absence of disclosures. The analysis is conducted for both a solitary firm and m co-dependent firms.

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  • Miles B. Gietzmann & Adam J. Ostaszewski, 2016. "The Sound of Silence: equilibrium filtering and optimal censoring in financial markets," Papers 1606.04039, arXiv.org.
    • Handle: RePEc:arx:papers:1606.04039
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    References listed on IDEAS

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    1. Adam Ostaszewski & Miles Gietzmann, 2008. "Value creation with Dye’s disclosure option: optimal risk-shielding with an upper tailed disclosure strategy," Review of Quantitative Finance and Accounting, Springer, vol. 31(1), pages 1-27, July.
    2. Townsend, Robert M., 1979. "Optimal contracts and competitive markets with costly state verification," Journal of Economic Theory, Elsevier, vol. 21(2), pages 265-293, October.
    3. Tomas Björk & Agatha Murgoci, 2014. "A theory of Markovian time-inconsistent stochastic control in discrete time," Finance and Stochastics, Springer, vol. 18(3), pages 545-592, July.
    4. Jung, Wo & Kwon, Yk, 1988. "Disclosure When The Market Is Unsure Of Information Endowment Of Managers," Journal of Accounting Research, Wiley Blackwell, vol. 26(1), pages 146-153.
    5. Dorje C. Brody & Lane P. Hughston & Andrea Macrina, 2008. "Information-Based Asset Pricing," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 11(01), pages 107-142.
    6. Miles Gietzmann & Adam Ostaszewski, 2014. "Why managers with low forecast precision select high disclosure intensity: an equilibrium analysis," Review of Quantitative Finance and Accounting, Springer, vol. 43(1), pages 121-153, July.
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    Cited by:

    1. M. Gietzmann & A. J. Ostaszewski & M. H. G. Schroder, 2020. "Guiding the guiders: Foundations of a market-driven theory of disclosure," Papers 2002.04886, arXiv.org.
    2. Miles B. Gietzmann & Adam J. Ostaszewski, 2022. "The Kind of Silence: Managing a Reputation for Voluntary Disclosure in Financial Markets," Papers 2210.11315, arXiv.org, revised Mar 2023.

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