Discussion of a model of two-tiered financial reporting

Article Abstract:

A proposed model of two-tiered financial reporting aims to show the effects of two-tiered disclosure on the welfare of relatively sophisticated and relatively unsophisticated types of traders, based on their abilities to process information. The model is lauded for its use of a strategic trading model to analyze disclosure and its competent and complete presentation of the mathematical analysis of the problem. However, the model is criticized for its poor approach to the issue of welfare. It also follows the trend of past literature that attempts to link disclosure alternatives to welfare, therefore providing economic results that lack convincing power. As a broad economic representation of disclosure, the model fails to expand on previous documentation and argues what is already self-evident.

Financial statements

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Trading volume and price reactions to public announcements

Article Abstract:

A two-period rational expectations model is used to illustrate the relation of price and volume changes to public announcements, to the characteristics of announcements, and to traders' beliefs during the announcement period. The model illustrates how volume of trading as an indicator of information variables produces more noise than price change. A proportionality between volume and change in absolute price, as well as traders' differential precision, exists. Changes in price during the announcement and the announcement's unexpected characteristics, as well as the announcement's relative value against traders' posterior beliefs, also show proportionality. The reaction of price to announcements is to increase precision and decrease the volume of information prior to the announcement.

Research, Stock price forecasting, Rational expectations (Economics), Information measurement

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