Why would a savvy investor give away her edge? This paper explores the paradox of informed traders who publicly disclose their information about firms.
We develop a dynamic model where a short-sighted, risk-averse and atomistic raider strategically decides whether to reveal her private signal. Under these conditions, we find that it is optimal for the raider to disclose her information to steer the asset price in her favor when it is either positive or extremely negative.
Our analysis also shows that trading constraints play a key role in shaping the raiders disclosure strategy. When these constraints are tight, she is less likely to disclose negative signals. If she does disclose, it typically indicates that her information is exceptionally bad. These insights align with an analysis of 296 damning reports issued by 12 dedicated short-bias funds between 2010 and 2021: the worse the signal and the tighter the constraints, the sharper the market reaction.
Paolo is Associate Professor of Finance at Bocconi University. Since 2018, he has been acting as Director of the International Economics and Finance B.Sc. Program. He has published in the Journal of Corporate Finance, the Review of Financial Studies, and the Journal of Finance on the topics of asset pricing and corporate finance
The seminar will be held in English.
Major information: Giulia Baschieri (giulia.baschieri@unibo.it).