The effects of public information with asymmetrically informed short-horizon investors

Journal Article (Journal Article)

This paper analyzes the effects of public information in a perfect competition trading model populated by asymmetrically informed short-horizon investors with different levels of private information precision. We first show that information asymmetry reduces the amount of private information revealed by price in equilibrium (i.e., price informativeness) and can lead to multiple linear equilibria. We then demonstrate that the presence of both information asymmetry and short horizons provides a channel through which public information influences price informativeness and equilibrium uniqueness. We identify conditions under which public information increases or decreases price informativeness, and when multiple equilibria may arise. Our analysis shows that public information not only directly endows prices with more (public) information, it can also have an important indirect effect on the degree to which prices reveal private information. ©, University of Chicago on behalf of the Accounting Research Center, 2014.

Full Text

Duke Authors

Cited Authors

  • Chen, Q; Huang, Z; Zhang, Y

Published Date

  • January 1, 2014

Published In

Volume / Issue

  • 52 / 3

Start / End Page

  • 635 - 669

Electronic International Standard Serial Number (EISSN)

  • 1475-679X

International Standard Serial Number (ISSN)

  • 0021-8456

Digital Object Identifier (DOI)

  • 10.1111/1475-679X.12052

Citation Source

  • Scopus