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A Theory of Investors' Disclosure

We investigate the voluntary disclosure decision of investors under uncertainty about information endowment (Dye 1985). In our model, an investor first uncovers initial evidence about the target firm and then seeks additional information to help interpret the initial evidence. The investor takes a position in the firm's stock, then voluntarily discloses some or all of their findings, and finally closes their position after the disclosure. We present two main findings. First, the investor will always disclose the initial evidence, even though the market is uncertain about whether the investor possesses such evidence. Second, the investor's disclosure strategy of the additional information increases stock price volatility: they disclose extreme news and withhold moderate news.

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