Endogenous Information Flows and the Clustering of Announcements
Viral V. Acharya, Peter DeMarzo, Ilan Kremer
American Economic Review · 2011 · Volume 101 · Issue 7
Abstract
We consider the strategic timing of information releases in a dynamic disclosure model. Because investors don't know whether or when the firm is informed, the firm will not necessarily disclose immediately. We show that bad market news can trigger the immediate release of information by firms. Conversely, good market news slows the release of information by firms. Thus, our model generates clustering of negative announcements. Surprisingly, this result holds only when firms can preemptively disclose their own information prior to the arrival of external information. These results have implications for conditional variance and skewness of stock returns. (JEL D21, D83, G12, G14, L11)
Keywords
Firm Behavior: Theory, Search, Learning, Information and Knowledge, Communication, Belief, Asset Pricing, Trading volume, Bond Interest Rates, Information and Market Efficiency, Event Studies, Production, Pricing, and Market Structure, Size Distribution of Firms
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