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Information Disclosure, Intertemporal Risk Sharing, and Asset Prices

Author

Listed:
  • Tri Vi Dang

    () (Yale University, Department of Economics)

  • Hendrik Hakenes

    () (Institute of Financial Economics, Leibniz University Hannover)

Abstract

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.

Suggested Citation

  • Tri Vi Dang & Hendrik Hakenes, 2010. "Information Disclosure, Intertemporal Risk Sharing, and Asset Prices," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2010_36, Max Planck Institute for Research on Collective Goods.
  • Handle: RePEc:mpg:wpaper:2010_36
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    References listed on IDEAS

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    7. Broadberry, Stephen & Burhop, Carsten, 2010. "Real Wages and Labor Productivity in Britain and Germany, 1871–1938: A Unified Approach to the International Comparison of Living Standards," The Journal of Economic History, Cambridge University Press, vol. 70(02), pages 400-427, June.
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    More about this item

    Keywords

    Financial reporting; disclosure; information policy; asset pricing; intertemporal risk sharing; general equilibrium;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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