A Theory of Investors' Disclosure

We investigate investors' voluntary disclosure decisions under uncertainty about their information endowment (Dye 1985). In our model, an investor may receive initial evidence about a target firm. Conditional on learning the initial evidence, the investor may receive additional evidence that helps interpret the initial evidence. The investor takes a position in the firm's stock, then voluntarily discloses some or all of their findings, and finally closes their position after the disclosure. We present two main findings. First, the investor will always disclose the initial evidence, even though the market is uncertain about whether the investor possesses such evidence. Second, the investor's disclosure strategy of the additional evidence increases stock price volatility: they disclose extreme news and withhold moderate news. Due to the withholding of the additional evidence, misleading disclosure arises as an equilibrium outcome, where the investor's report decreases (increases) price despite their news being good (bad). These results remain robust when considering the target firm’s endogenous response to the investor's report. © 2025 Canadian Academic Accounting Association.