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Should We Regulate Financial Information


  • Pablo Kurlat
  • Laura Veldkamp


Regulations that require asset issuers to disclose payoff-relevant information to potential buyers are often called “investor protection.” But even when they improve real economic efficiency, such regulations may still harm investors. By making payoffs less uncertain, information reduces risk and therefore reduces return. Similarly, real efficiency gains benefit only asset issuers, who can always choose to disclose. Providing information improves investors' welfare only when 1) issuers strategically manipulate the asset supply to obfuscate information, or 2) the information induces firms to take on riskier investments. Using a portfolio choice model with information markets, the paper explores which types of assets might warrant investor protection.
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Suggested Citation

  • Pablo Kurlat & Laura Veldkamp, 2012. "Should We Regulate Financial Information," Working Papers 12-15, New York University, Leonard N. Stern School of Business, Department of Economics.
  • Handle: RePEc:ste:nystbu:12-15

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    References listed on IDEAS

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    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Bai, Jennie & Philippon, Thomas & Savov, Alexi, 2016. "Have financial markets become more informative?," Journal of Financial Economics, Elsevier, vol. 122(3), pages 625-654.
    2. Jeon, Doh-Shin & Lovo, Stefano, 2013. "Credit rating industry: A helicopter tour of stylized facts and recent theories," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 643-651.
    3. repec:eee:jetheo:v:173:y:2018:i:c:p:289-319 is not listed on IDEAS
    4. Boleslavsky, Raphael & Kelly, David L. & Taylor, Curtis R., 2017. "Selloffs, bailouts, and feedback: Can asset markets inform policy?," Journal of Economic Theory, Elsevier, vol. 169(C), pages 294-343.
    5. Benhabib, Jess & Liu, Xuewen & Wang, Pengfei, 2016. "Sentiments, financial markets, and macroeconomic fluctuations," Journal of Financial Economics, Elsevier, vol. 120(2), pages 420-443.
    6. Dutta, Sunil & Nezlobin, Alexander, 2017. "Information disclosure, firm growth, and the cost of capital," Journal of Financial Economics, Elsevier, vol. 123(2), pages 415-431.
    7. Pavan, Alessandro & Vives, Xavier, 2015. "Information, Coordination, and Market Frictions: An Introduction," Journal of Economic Theory, Elsevier, vol. 158(PB), pages 407-426.
    8. Stenzel, André & Wagner, Wolf, 2015. "Opacity and Liquidity," CEPR Discussion Papers 10665, C.E.P.R. Discussion Papers.
    9. Savitar Sundaresan & Jaromir Nosal & Marcin Kacperczyk, 2017. "Market Power and Informational Efficiency," 2017 Meeting Papers 356, Society for Economic Dynamics.

    More about this item

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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