Disclosing Information About the Asset Value Range in Market
Jianhao Su, Yanliang Zhang
Source abstract
The information released to investors in financial markets takes various forms. We understand range information as information about the upper and lower bounds that the payoff of a risky asset may reach in the future. This study develops rational expectation models to explore the market impacts of disclosing such information. Our model shows that its disclosure can decrease market price sensitivity to private signal and increase market liquidity. Furthermore, the market impact of its disclosure depends on the position and precision of the range disclosed. When the linear combination of private signal and noise trading volume is distant from the disclosed range, the reaction of price to a variation in private signal will almost vanish, whereas movement in the disclosed range can efficiently impact price. Under certain conditions, such as a high proportion of informed traders or a small size of noise trading in the market, disclosing range information is more likely to reduce asset price and raise capital cost.
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