Do Information Releases Increase or Decrease Information Asymmetry? New Evidence from Analyst Forecast Announcements

• In Event: Information Acquisition and Information Asymmetry

Abstract

Prior literature documents an announcement period increase in information asymmetry for earnings announcements and management forecasts. In sharp contrast, we predict and document a decrease in information asymmetry upon announcement of analyst forecasts. We find that this decrease is more pronounced for analyst forecasts with greater information content and when analysts exert higher effort, and is less pronounced after exogenous regulatory actions that diminished analysts’ ability to obtain private information. Our predictions and evidence demonstrate the general insight that the directional effect of an information release on announcement period information asymmetry depends on whether the information is unprocessed or processed, and on how the information interacts with prior information held by sophisticated and unsophisticated investors. These findings enhance our understanding of the effects of information intermediaries in capital markets.

Authors

• Dan Amiram, Columbia University

• Edward Owens, University of Rochester

• Oded Rozenbaum, Columbia University