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Endogenous Information Flows and the Clustering of Announcements by

By Viral V. Acharya, Peter Demarzo and Ilan KremerViral V. Acharya, Peter Demarzo and Ilan Kremer


We consider the strategic timing of information releases. We develop a dynamic disclosure model in which a firm may privately receive information. Because investors don’t know whether 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 can slow the release of information by firms. Thus, our model generates clustering of negative announcements. Surprisingly, this result holds only when firms can preempt the arrival of external information. These results have implications for conditional variance and skewness of stock returns. (JEL D8, G3, M4) One of the most important ingredients to the process of price discovery in financial markets is the flow of new information. The importance of information flow is perhaps most apparent during times of market “crisis, ” when it often seems that bad news is being reported simultaneously from multiple sources. This clustering of news could occur because firms learn more during bad times, or because firms strategically time the release of information. Indeed, it has long been recognized in the literature that corporate news disclosures are controlled by selfintereste

Year: 2010
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