Costly information acquisition and public disclosure: implications for investor welfare

We explore the combined impacts of costly information acquisition and public disclosure for investors. When there are only outsiders in the market, disclosure with low public information precision is beneficial to them because they can obtain more return by thoroughly utilizing the market-making cap...

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Bibliographic Details
Published in:Applied economics letters 2020-06, Vol.27 (11), p.880-885
Main Authors: Chen, Binbin, Liu, Shancun, Zhang, Qiang
Format: Article
Language:English
Subjects:
Acquisition
Economic analysis
Economic theory
Economics
Information cost
information disclosure
investor welfare
Investors
market making
Welfare
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Summary:We explore the combined impacts of costly information acquisition and public disclosure for investors. When there are only outsiders in the market, disclosure with low public information precision is beneficial to them because they can obtain more return by thoroughly utilizing the market-making capacity. When insiders and outsiders coexist in the market, the increase of information cost or disclosed-information precision can improve their welfare by reducing adverse selection risk. When all investors are insiders, reducing information acquisition cost is efficient for welfare improvement.
ISSN:1350-4851
1466-4291
DOI:10.1080/13504851.2019.1646856