The Impact of Increased Voluntary Disclosure on Market Information Asymmetry, Informed and Uninformed Trading

We document a negative relation between voluntary disclosure and proxies of information asymmetry, showing that transitory voluntary disclosure matters. Informed and uninformed trading factors are isolated from the variability of the proxies. Our analysis demonstrates that higher levels of informed trading increase bid-ask spreads, trading volume and price volatility whereas higher levels of uninformed trading reduce spreads and increase trading volume. The results suggest that while increased voluntary disclosure reduces adverse selection and lowers the level of informed trading, transaction cost and risk, average trading volume may lessen due to diminished informed trading activity.