Asymmetric information and news disclosure rules

When the imminence of news announcements is not public knowledge, many trad ers will lack information on both the mean and Variance of private informat ion. Our analysis of such a setting in both single and multisecurity contex ts implies that disclosure of impending information events by Arms can boun d variance uncertainty and thereby improve investor welfare by mitigating t he market breakdown problem. We also find that the equilibrium pricing func tions are nonlinear; specifically, convex for small trades and concave for larger ones. In addition, we predict that large transactions will be follow ed by large levels of volatility. Journal of Economic Literature Classifica tion Numbers: 022, 026, 522. (C) 2000 Academic Press.