Information Acquisition, Information Release and Trading Dynamics
Posted: 8 Jul 1998
There are 2 versions of this paper
Abstract
The purpose of this paper is to examine how public information systems (e.g., firm's accounting systems) affect investors' decisions to acquire and trade on private information about the value of a firm. We develop a model of a stock exchange in which competitive specialist/dealers set prices and traders with private information trade strategically. It incorporates two types of private information: one that may be publicly released in any trading period; and one that is not publicly released during the trading horizon. We examine strategic traders' trading decisions and expected profits when they may or may not be certain of the exact time of public release. The model is general enough to incorporate different types of public releases: regularly scheduled announcements, widely expected announcements and unanticipated announcements. We also examine how characteristics of the joint distribution of the two types of private information (i.e., the scope of the public information system) and the associated uncertainty in the time of a public release affect traders' decisions to acquire private information about the value of a firm.
JEL Classification: G14
Suggested Citation: Suggested Citation