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Rational Information Leakage, Hai Lu, Raffi Indjejikian, Liyan Yang
Rational Information Leakage, Hai Lu, Raffi Indjejikian, Liyan Yang
Research Collection School Of Accountancy
Empirical evidence suggests that information leakage in capital markets is common. We present a trading model to study the incentives of an informed trader (e.g., a well informed insider) to voluntarily leak information about an asset's value to one or more independent traders. Our model shows that, while leaking information dissipates the insider's information advantage about the asset's value, it enhances his information advantage about the asset's execution price relative to other informed traders. The profit impact of these two effects are countervailing. When there are a sufficient number of other informed traders, the profit impact from enhanced information dominates. …
Managerial Incentives And Management Forecast Precision, Qiang Cheng, Ting Luo, Heng Yue
Managerial Incentives And Management Forecast Precision, Qiang Cheng, Ting Luo, Heng Yue
Research Collection School Of Accountancy
Managers have great discretion in determining forecast characteristics, butlittle is known about how managerial incentives affect these characteristics. This paperexamines whether managers strategically choose forecast precision for self-servingpurposes. Building on the prior finding that the market reaction to vague forecasts isweaker than its reaction to precise forecasts, we find that for management forecastsdisclosed before insider sales, more positive (negative) news forecasts are more (less)precise than other management forecasts. The opposite applies to managementforecasts disclosed before insider purchases. These results are consistent withmanagers strategically choosing forecast precision to increase stock prices beforeinsider sales and to decrease stock prices before insider purchases. …