Does Information Intensity Matter for Stock Returns? Evidence from SEC Current Report Filings

• In Event: Financial Markets with Incomplete Information

Abstract

This paper identifies an important source of variation in U.S. firms' material information flows: Their SEC current report filing frequency. Exploiting cross-sectional variation in this novel proxy for information intensity, this paper finds that firms with higher information intensity experience lower future returns and lower future volatilities. The marginal return impact is higher at low levels of information intensity and high levels of prior volatility. On average, an information-intensity-based long-short portfolio generates an abnormal return of 4.4% per year; this abnormal return can be over 10% per year for certain subset of firms. These novel findings suggest that, due to the dynamic nature of information arrival, the frequency/quantity of information, is an important source affecting information environment and stock returns of public companies. These findings are consistent with the predictions of a broad class of noisy REE models and estimation risk models and highlight the importance of learning in financial markets with incomplete information.

Author

• Xiaofei Zhao, The University of Texas at Dallas