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Non-fundamental information disclosure and discretionary liquidity trading

Author

Listed:
  • Li, Lanyu
  • Liu, Hong
  • Yang, Qingshan

Abstract

We examine how the disclosure of non-fundamental information affects market attributes in the presence of discretionary liquidity traders. We find that the involvement of discretionary liquidity traders augments market liquidity, whereas non-fundamental information disclosure has the reverse effect. Furthermore, the effect of disclosure on the equilibrium number of discretionary liquidity traders depends on whether the speculator discloses information about only noise traders or all liquidity traders. Discretionary liquidity traders may result in multiple equilibria, which are related to the speculator’s disclosure preferences. Under specific conditions, the speculator can select the noise level of disclosed information to optimize profits, offering insights into how speculators make decisions regarding information disclosure in financial markets. Moreover, disclosure can minimize price volatility when the equilibrium number of informed traders is endogenously determined, offering practical guidance on how financial markets should use information disclosure strategies to stabilize stock prices.

Suggested Citation

  • Li, Lanyu & Liu, Hong & Yang, Qingshan, 2025. "Non-fundamental information disclosure and discretionary liquidity trading," Economic Modelling, Elsevier, vol. 147(C).
    • Handle: RePEc:eee:ecmode:v:147:y:2025:i:c:s0264999325000331
    DOI: 10.1016/j.econmod.2025.107038
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    More about this item

    Keywords

    Non-fundamental information; Discretionary liquidity traders; Market liquidity; Information efficiency; Price volatility;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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