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Speculation with Information Disclosure

Published online by Cambridge University Press:  28 February 2023

Paolo Pasquariello  and
Yifei Wang
Paolo Pasquariello*
Affiliation:
University of Michigan Ross School of Business
Yifei Wang
Affiliation:
Weiss Asset Management [email protected]
*
[email protected] (corresponding author)
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Abstract

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Sophisticated investors frequently choose to publicly disclose private information, a phenomenon inconsistent with most theories of speculation. We propose and test a model to bridge this gap. We show that when a speculator cares about both short-term portfolio value and long-term profit, a disclosure mixing asset fundamentals and her holdings is optimal by inducing competitive dealership to revise prices toward those holdings while alleviating adverse selection. We find that when mutual fund managers have stronger short-term incentives, the frequency of strategic non-anonymous disclosures about their stocks by market-worthy newspaper articles increases and those stocks’ liquidity improves, consistent with our model.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 59 , Issue 3 , May 2024 , pp. 956 - 1002
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2023. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

The authors are grateful to Thierry Foucault (the editor) and an anonymous referee as well as Dan Bernhardt, Sugato Bhattacharyya, Philip Bond, Alex Chinco, Stefan Eichler, Miguel Ferreira, Diego Garcia, Eitan Goldman, Itay Goldstein, Zhiguo He, Tullio Jappelli, Marcin Kacperczyk, Ron Kaniel, Aditya Kaul, Maria Marchica, Stefan Nagel, Marco Pagano, Jeff Pontiff, Uday Rajan, Zhen Shi, Steve Slezak, Denis Sosyura, Alexei Tchistyi, Charles Trzcinka, Chaojun Wang, Toni Whited, Liyan Yang, Mao Ye, and seminar participants at the University of Michigan, SFS Cavalcade, AFA meetings, University of Cincinnati, University of Naples Federico II, University of Illinois, NOVA, University of Warwick, University of Manchester, Indiana University, Università Ca’ Foscari Venezia, TU Dresden, Penn State University, and University of Alberta for valuable suggestions and helpful comments, as well as to Mengxi Sun for excellent research assistance. Pasquariello also thanks the Department of Economics at Università Ca’ Foscari Venezia for its generous hospitality while completing parts of this project.

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