Does Disclosure Level the Playing Field? Italian Market Microstructure Evidence
Speaker
Abstract
| This paper investigates whether disclosure reduces the information asymmetry between heterogeneously informed investors. We use a unique sample of Italian market microstructure data that allows us to assess the trading sizes of completed transactions separately for the buy and sell side. Thus, our data allows us to use buy and sell trade sizes as a high-quality proxy for the wealth and sophistication level of investors. We use conference calls and strategic plan presentations of Italian firms as our disclosure events. Strategic plan presentations are used to provide complex forward-looking information to investors. We find that strategic plan presentations cause significantly more short-window abnormal turnover than earnings conference calls. In addition, we find that this abnormal turnover is caused by a disproportional share of large trades. Also, abnormal net buying activity caused by large (small) trades is consistently linked to positive (negative) returns. Finally, large trade induced net buying behavior is related to a short-window post information-announcement drift. Our findings are consistent with strategic plan presentations in Italy causing divergence in beliefs, increasing information asymmetry, thereby unleveling the playing field and resulting in a wealth distribution effect from unsophisticated to sophisticated investors. |
| Contact information: |
| Paolo Perego |
