Public Information and Unknown Capital Market Participants

Abstract

We consider a single-period, pure-exchange setting with a single trading date and a single consumption date. Investors are uncertain about the risk aversion of the other investors participating in the capital market, implying that the market’s aggregate risk aversion is a random variable. Unlike the setting where investors are fully informed about the market’s aggregate risk aversion, we find that investors can have a strict preference for releasing public information prior to trading. In particular, we identify conditions under which the information risk problem does not arise. Our study complements other research into the source of value for publicly reported accounting information.

Keywords: public information, equilibrium, unkown risk aversion

JEL Classification: D81, G14