Revealing the invisible: the role of delayed trader identity disclosure in information efficiency

Abstract

This paper investigates how the timing of institutional trader identity disclosure affects market information efficiency. We develop a theoretical model in which risk-averse informed traders, receiving noisy signals, may refrain from trading when potential profits do not justify the informational risk. In the absence of trader identity disclosure, this behaviour leads to an incomplete incorporation of private information into prices. We empirically test this mechanism using a hand collected dataset of 1232 institutional trade packages on the Australian Stock Exchange, where trader identities are disclosed with varying delays. We document significant abnormal returns upon identity disclosure, with no attenuation based on the length of the disclosure delay, contradicting the prediction that order flow alone fully aggregates private information over time. Furthermore, price informativeness increases with execution-period microstructure noise, indicating that such noise impedes inference from order flow and that identity disclosure acts as a corrective mechanism. Our numerical analysis reveals an overlooked inefficiency in anonymous trading environments that demonstrates delayed, but not immediate, identity disclosure can enhance price discovery without deterring informed trading. Our results challenge classical models of market microstructure and offer timely policy implications: modest post-trade disclosure delays may effectively balance market transparency with incentives for information acquisition.