The Hirshleifer Effect in a Dynamic Setting

We characterize a prominent tradeoff in the timing of public information releases in dynamic competitive economies populated by heterogeneous agents. While early information releases improve the consumption smoothing, they also reduce risk sharing incentives ex-ante. When either financial markets are under-developed to reap risk sharing potentials, or agents perceive large consumption smoothing benefits, early information releases are universally desirable to all agents, and vice versa. We analytically establish sufficient conditions to quantify these intuitions, and shed new light on the Hirshleifer effect of the information-based welfare reduction from a broader economic perspective incorporating intertemporal dynamics, market availability and heterogeneous agents