The Effect of Financial Information Disclosure on Capital Market Efficiency and Investor Protection Mechanisms

Posted: Jun 14, 2025

• Ethan Gonzalez
• Ethan Torres
• Evelyn Allen

Abstract

The relationship between financial information disclosure and capital market efficiency represents one of the most fundamental questions in financial economics. Traditional theoretical frameworks, rooted in efficient market hypothesis and agency theory, have provided valuable insights but increasingly fail to capture the complex dynamics of modern financial markets. The digital transformation of capital markets, characterized by high-frequency trading, algorithmic decision-making, and global interconnectedness, has created new challenges for understanding how information disclosure affects market outcomes and investor welfare. This research introduces a novel computational approach that transcends traditional econometric methods by incorporating principles from quantum mechanics, complex adaptive systems, and artificial intelligence. Our work is motivated by the observation that financial markets exhibit properties similar to quantum systems, where market participants exist in superposition states of potential investment decisions until information disclosure causes state collapse. This perspective allows us to model the non-binary, probabilistic nature of information processing in financial markets with unprecedented accuracy. We address three fundamental research questions that have remained inadequately explored in the literature: First, how do different disclosure regimes affect the fractal dimension of market efficiency across various time scales? Second, what is the optimal information disclosure spectrum that maximizes both market efficiency and investor protection simultaneously? Third, how can computational models capture the emergent properties of information cascades in complex market environments? Our contribution lies in developing a quantum-inspired neural network architecture that simulates market dynamics under varying disclosure conditions. This approach represents a significant departure from traditional research methodologies in financial economics and offers new insights into the complex interplay between information, market efficiency, and investor protection.