Uncertain information release and informed trading

Abstract

The effect of uncertainty about the exact public release time of a private signal is studied. In showing that an equilibrium trading strategy for informed traders and an equilibrium pricing rule for the market maker exist, the trade-off between this uncertainty and informed trader competition can be studied for different types of information, and its impact on information release policies of firms. As expected, uncertainty with regard to the release date (on its own or with competition between informed traders) induces increased price informativeness and trading intensity by informed traders. Implications of this include an increase in price informativeness and a decrease in informed trader profits in the following circumstances: (i) for unpredictable information release dates rather than predictable; (ii) for good news rather than bad news; and (iii) if a firm chooses stochastic rather than constant release dates for predictable information releases.