Costly information acquisition and public disclosure: implications for investor welfare

ABSTRACT

We explore the combined impacts of costly information acquisition and public disclosure for investors. When there are only outsiders in the market, disclosure with low public information precision is beneficial to them because they can obtain more return by thoroughly utilizing the market-making capacity. When insiders and outsiders coexist in the market, the increase of information cost or disclosed-information precision can improve their welfare by reducing adverse selection risk. When all investors are insiders, reducing information acquisition cost is efficient for welfare improvement.

KEYWORDS:

• Information cost
• information disclosure
• investor welfare
• market making

JEL CLASSIFICATION:

• D40
• D82
• G14

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

This work was supported by the National Natural Science Foundation of China [grant numbers 71771008, 71871129]; Fundamental Research Funds for the Central Universities [grant number XK1802-5].