The quality of disclosed information best cs books notes
Pagano and Volpin (2008) address the puzzle of coarse information transmission by an agency to the market.
The standard economic view is that more information increases market efficiency, yet information on the underlying loans and the tools to analyse them were not made easily accessible by the issuers or the ratings agencies.
The point they make is that in a market with both sophisticated and naïve investors, only the first will be able to interpret and process additional complex information, and this will create a “winner’s curse” problem for naïve investors.
The implication is that limiting information may help develop the primary market, as it will allow unsophisticated agents to access it at a more level playing field.
Nevertheless, they point out that the cost of this information coarseness is that the secondary market will be less liquid.