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Disclosures and asset returns

  • Hyun Song Shin

Public information to 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, market prices observed in equilibrium can be given a simple characterization that relies only on the fact value of the announcement. Also, this characterisation predicts that the return variance following a bed outcome is higher than it would have been if he outcome were good. When investors are risk averse, this leads to negative serial correlation of asset returns.

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Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 25044.

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Length: 31 pages
Date of creation: Mar 2001
Date of revision:
Handle: RePEc:ehl:lserod:25044
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  1. David Kreps & Robert Wilson, 1998. "Sequential Equilibria," Levine's Working Paper Archive 237, David K. Levine.
  2. repec:oup:restud:v:60:y:1993:i:1:p:1-34 is not listed on IDEAS
  3. G. William Schwert, 1988. "Why Does Stock Market Volatility Change Over Time?," NBER Working Papers 2798, National Bureau of Economic Research, Inc.
  4. Paul R. Milgrom & John Roberts, 1985. "Relying on the Information of Interested Parties," Cowles Foundation Discussion Papers 749, Cowles Foundation for Research in Economics, Yale University.
  5. Bull, Jesse & Watson, Joel, 2004. "Evidence disclosure and verifiability," Journal of Economic Theory, Elsevier, vol. 118(1), pages 1-31, September.
  6. Lewis Tracy R. & Sappington David E. M., 1993. "Ignorance in Agency Problems," Journal of Economic Theory, Elsevier, vol. 61(1), pages 169-183, October.
  7. H.S. Shin, 1994. "News Management and the Value of Firms," RAND Journal of Economics, The RAND Corporation, vol. 25(1), pages 58-71, Spring.
  8. Campbell, John Y & Kyle, Albert S, 1993. "Smart Money, Noise Trading and Stock Price Behaviour," Review of Economic Studies, Wiley Blackwell, vol. 60(1), pages 1-34, January.
  9. Cox, John C. & Ross, Stephen A. & Rubinstein, Mark, 1979. "Option pricing: A simplified approach," Journal of Financial Economics, Elsevier, vol. 7(3), pages 229-263, September.
  10. Verrecchia, Robert E., 1983. "Discretionary disclosure," Journal of Accounting and Economics, Elsevier, vol. 5(1), pages 179-194, April.
  11. Daniel J. Seidmann & Eyal Winter, 1997. "Strategic Information Transmission with Verifiable Messages," Econometrica, Econometric Society, vol. 65(1), pages 163-170, January.
  12. Crawford, Vincent P & Sobel, Joel, 1982. "Strategic Information Transmission," Econometrica, Econometric Society, vol. 50(6), pages 1431-51, November.
  13. Grossman, Sanford J, 1981. "The Informational Role of Warranties and Private Disclosure about Product Quality," Journal of Law and Economics, University of Chicago Press, vol. 24(3), pages 461-83, December.
  14. Freeman, Robert N., 1987. "The association between accounting earnings and security returns for large and small firms," Journal of Accounting and Economics, Elsevier, vol. 9(2), pages 195-228, July.
  15. Austen-Smith, David, 1994. "Strategic Transmission of Costly Information," Econometrica, Econometric Society, vol. 62(4), pages 955-63, July.
  16. Christie, Andrew A., 1982. "The stochastic behavior of common stock variances : Value, leverage and interest rate effects," Journal of Financial Economics, Elsevier, vol. 10(4), pages 407-432, December.
  17. Lipman Barton L. & Seppi Duane J., 1995. "Robust Inference in Communication Games with Partial Provability," Journal of Economic Theory, Elsevier, vol. 66(2), pages 370-405, August.
  18. repec:oup:restud:v:57:y:1990:i:1:p:25-47 is not listed on IDEAS
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