Session 5B.1 - Disclosure

Abstract:
This paper studies information sharing between strategic investors with private information of different precision about the asset fundamental. We find that a coarsely informed investor would always share her information ``as is'' if her counterparty investor is well informed about the fundamental. In this way, the coarsely informed investor invites the well informed investor to trade against her information, thereby offsetting her informed order flow and reducing the price impact. The coarsely informed investor gains from the information sharing but the well informed investor loses from it. Our model offers an explanation for why the masses of investors express investment opinions on social media and sheds new light on information networks in financial markets and institutional investors' sentiment trading strategy.