Asymmetric information and news disclosure rules

When the imminence of news announcements is not public knowledge, many traders will lack information on both the mean and Variance of private information. Our analysis of such a setting in both single and multisecurity contexts implies that disclosure of impending information events by Arms can bound variance uncertainty and thereby improve investor welfare by mitigating the market breakdown problem. We also find that the equilibrium pricing functions are nonlinear; specifically, convex for small trades and concave for larger ones. In addition, we predict that large transactions will be followed by large levels of volatility. Journal of Economic Literature Classification Numbers: 022, 026, 522. (C) 2000 Academic Press.