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Exhibition: Why tough disclosure laws decrease stock price
fluctuations Introduction: This exhibition presumes understanding
of concepts from the exhibition: Why
the equilibrium stock price is fluctuating. The point of the present
exhibition is to explain why tougher disclosure regulation leads to less
fluctuating stock prices. This may hardly surprise anyone's intuitive
understanding of the matter, but this figure provides a reason, namely, that
a tougher disclosure regime decreases the cost of gathering and analyzing
information about fundamental value. The dynamics is roughly this: The
government (stock exchange) passes more demanding disclosure laws (rules).
This in turn decreases the cost of informed investors who become more able
to profit. This attracts other informed investors and as a result the share
of informed investors to non-informed investors increases. This in turn
decreases the relative stock price fluctuations and as a result of this the
extraordinary benefit of being an informed investor fades out. This again
stops the influx of informed investors and a new fluctuating equilibrium
with less stock price fluctuations has been established. Click the links
within and below the figure for more info. Note: All bold text in figure below can
be clicked to obtain more information (If you can’t click
here). |
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- Copyright 1997-2010, ViamInvest. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Legal notice. |