Theory of Cyclical Market Transparency

This paper introduces the cyclical market transparency (CMT) theory - a concept of cyclical market transparency levels, presenting a view that transparency in a market, like economic growth levels, varies over the period of the economic cycle. The theory suggests that the clarity of market operations and the “transparency level” in a market vary over the economic cycle; this idea can be applied both to the macroeconomic performance of the economy overall and the performance of an individual firm or market. Transparency level will be defined as the degree to which information about the operations, financial performance, and regulatory compliance of companies within that market is available and understandable to all stakeholders, including investors, regulators, and the general public. This includes data on financial performance, regulatory compliance, corporate governance, and market operations. This model reflects that market transparency improves during periods of economic boom because of increased regulations and corporate disclosures driven by economic activity and higher levels of scrutiny. On the other hand, transparency tends to decrease during economic downturns and recession periods as companies may conceal poor performances or relax compliance efforts due to limited resources and budget constraints.