Working Paper: NBER ID: w28348
Authors: Kerry Back; Bruce I. Carlin; Seyed Mohammad Kazempour
Abstract: We derive the effect of plausible deniability on asset risk premia in a dynamic setting with correlated firm values, systematic risk, and risk-averse investors. Firms optimally exercise American disclosure options, which are more valuable due to the possibility that other correlated firms may disclose high values, lifting investors' perceptions of the values of nondisclosing firms. Risk premia rise (and average prices fall) prior to disclosures, because investors make inferences about aggregate risks from failures to disclose, resulting in higher state prices for bad states.
Keywords: No keywords provided
JEL Codes: D21; D82; G12; G14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Plausible deniability (Y50) | higher risk premia (G19) |
| Plausible deniability (Y50) | lower average prices (P22) |
| Plausible deniability (Y50) | mixture distribution of firm values (D39) |
| mixture distribution of firm values (D39) | higher aggregate risks (G52) |
| lower average prices (P22) | inferences about risks (D81) |
| correlated values of firms (G32) | market dynamics (D49) |
| disclosure timing of one firm (G14) | equilibrium of others (D59) |