Why does public news augment information asymmetries?

Research output: Contribution to journalArticleScientificpeer-review


The arrival of a public signal worsens the adverse selection problem if informed
investors are risk-averse. Precisely, the public signal reduces uncertainty which
boosts informed investors’ participation leading to a more toxic order flow. I confirm the model’s empirical predictions by estimating the effect of the publication of the weekly change in oil inventories on liquidity via a difference-in-differences strategy. I show that the mean bid-ask spread doubles immediately after the release and volume increases by 32 percent regardless of the report’s content. Further, in line with the model, implied volatility drops and insider’s trading increase after the report’s publication.
Original languageEnglish
Pages (from-to)72-89
JournalJournal of Financial Economics
Issue number1
Publication statusPublished - Jul 2020


  • public information
  • news release
  • asymmetric information
  • liquidity

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