Maffett (this issue) finds that the opacity of a firm’s information environment affects the
degree of informed trade by institutional investors. In this discussion, I address the key
research design choices involved in studies of opacity and informed trading and I relate
the results to the literature on institutional investor performance and stock selection.
I suggest that future work investigate the role of discretionary opacity in facilitating
informed trade as part of the cost–benefit trade-off of the opacity decision maker (e.g.,
managers, analysts); test the relative effects of opacity on private information, liquidity,
and price correction speed; and examine how institutional investors select which opaque
firms to hold.