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Information Disclosure, Intertemporal Risk Sharing, and Asset Prices

Listed author(s):
  • Tri Vi Dang


    (Yale University, Department of Economics)

  • Hendrik Hakenes


    (Institute of Financial Economics, Leibniz University Hannover)

Disclosure of information triggers immediate price movements, but it mitigates price movements at a later date, when the information would otherwise have become public. Consequently, disclosure shifts risk from later cohorts of investors to earlier cohorts. Hence, disclosure policy can be interpreted as a tool to “control” interim asset price movements, and to allocate risk intertemporally. This paper shows that a policy of partial disclosure (and, hence, of intertemporal risk sharing) can maximize, but surprisingly also minimize, the market value of the firm. Our model also applies to a setting where a central bank chooses the quality and frequency of the disclosure of macroeconomic information, or to the precision of disclosure by (distressed) banks.

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Paper provided by Max Planck Institute for Research on Collective Goods in its series Discussion Paper Series of the Max Planck Institute for Research on Collective Goods with number 2010_36.

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Date of creation: Sep 2010
Handle: RePEc:mpg:wpaper:2010_36
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