Public Disclosure, Private Information Collection and Short-Term-Trading

This paper examines how public disclosure affects private information acquisition activity in a market economy. We analyze a setting where traders with short-term investment horizons are allowed to trade on their private information prior to a public disclosure. We demonstrate in this setting that public disclosure stimulates investment in private information acquisition. This result is shown to have implications for the magnitude of the pre-announcement and annoucement price reactions to the disclosure.