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Disclosures and Asset Returns

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  • Shin, Hyun Song

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.

Suggested Citation

  • Shin, Hyun Song, 2002. "Disclosures and Asset Returns," CEPR Discussion Papers 3345, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:3345
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    binomial trees; disclosure games; residual uncertainty;

    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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