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American Economic Review: Vol. 101 No. 7 (December 2011)

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Endogenous Information Flows and the Clustering of Announcements

Article Citation

Acharya, Viral V., Peter DeMarzo, and Ilan Kremer. 2011. "Endogenous Information Flows and the Clustering of Announcements." American Economic Review, 101(7): 2955-79.

DOI: 10.1257/aer.101.7.2955

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)

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Authors

Acharya, Viral V. (NYU)
DeMarzo, Peter (Stanford U)
Kremer, Ilan (Stanford U)

JEL Classifications

D21: Firm Behavior: Theory
D83: Search; Learning; Information and Knowledge; Communication; Belief
G12: Asset Pricing; Trading volume; Bond Interest Rates
G14: Information and Market Efficiency; Event Studies
L11: Production, Pricing, and Market Structure; Size Distribution of Firms


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