Template-Type: ReDIF-Paper 1.0
Title: Opacity, Liquidity and Disclosure Policies
Author-Name: André Stenzel
Author-Email: andre.stenzel@uni-mannheim.de
Author-Name: Wolf Wagner
Author-Email: wagner@rsm.nl
Classification-JEL: M40, M48, G14
Keywords: disclosure requirements, liquidity, opacity, asymmetric information

Abstract:We present a model that links the opacity of an asset to its liquidity. While low opacity assets are liquid, intermediate levels of opacity provide incentives for investors to
acquire private information, causing adverse selection and illiquidity. High opacity,
however, benefits liquidity by reducing the value of a unit of private information to
investors. The cross-section of bid-ask spreads of U.S. firms is shown to be consistent
with this hump-shape relationship between opacity and illiquidity. Our analysis suggests that uniform disclosure standards may be suboptimal; efficient disclosure can
instead be achieved through a two-tier standard system or by subsidizing voluntary
disclosure.

Note: 
Length: 54
Creation-Date: 2018-12
Revision-Date: 
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp065
File-Format: application/pdf
Handle: RePEc:bon:boncrc:CRCTR224_2018_065