Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/103460
Authors: 
Di Maggio, Marco
Pagano, Marco
Year of Publication: 
2014
Series/Report no.: 
CFS Working Paper Series 485
Abstract: 
We study a model where some investors ("hedgers") are bad at information processing, while others ("speculators") have superior information-processing ability and trade purely to exploit it. The disclosure of financial information induces a trade externality: if speculators refrain from trading, hedgers do the same, depressing the asset price. Market transparency reinforces this mechanism, by making speculators' trades more visible to hedgers. As a consequence, issuers will oppose both the disclosure of fundamentals and trading transparency. Issuers may either under- or over-provide information compared to the socially efficient level if speculators have more bargaining power than hedgers, while they never under-provide it otherwise. When hedgers have low financial literacy, forbidding their access to the market may be socially efficient.
Subjects: 
disclosure
transparency
financial literacy
limited attention
OTC markets
JEL: 
D83
D84
G18
G38
K22
M48
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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