Can public information promote market stability?

- With lower public information precision, multiple equilibria arise.
- Traders may reverse trading in multiple equilibria.
- There is a unique equilibrium if public information precision is sufficiently large.
- The reverse trading does not occur in unique equilibrium.

We study the effect of public information revealing part of underlying fundamentals on market stability. It shows that accurate public information reduces the uncertainty faced by informed traders and increases their responsiveness to private information and expected volume. The reverse trading and multiple equilibria arise under lower public information precision and they disappear when public information precision increases sufficiently.