Affiliation:
1. Michigan State University.
2. Queen's University.
3. Stanford University.
Abstract
We hypothesize that firms' 10-K market risk disclosures, recently mandated by SEC Financial Reporting Release No. 48 (FRR No. 48), reduce investors' uncertainty and diversity of opinion about the implications, for firm value, of changes in interest rates, foreign currency exchange rates, and commodity prices. We argue that this reduced uncertainty and diversity of opinion should dampen trading volume sensitivity to changes in these underlying market rates or prices. Consistent with this hypothesis, we find that after firms disclose FRR No. 48-mandated information about their exposures to interest rates, foreign currency exchange rates, and energy prices, trading volume sensitivity to changes in these underlying market rates and prices declines, even after controlling for other factors associated with trading volume. The observed declines in trading volume sensitivity are consistent with FRR No. 48 market risk disclosures providing useful information to investors.
Publisher
American Accounting Association
Subject
Economics and Econometrics,Finance,Accounting
Reference68 articles.
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2. Ahmed, A., A. Beatty, and B. Bettinghaus. 2000. Evidence on the efficacy of interest rate risk disclosures by commercial banks. Working paper, Syracuse University, Syracuse, New York and Pennsylvania State University, University Park, Pennsylvania.
3. American Institute of Certified Public Accountants (AICPA). 1994. Improving Business Reporting- A Customer Focus: Meeting the Information Needs of Investors and Creditors. New York, NY: AICPA.
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166 articles.
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