Running without Moving? Corporate Disclosure and Annual Price Discovery in Bad versus Good Times

Abstract

We document a large gap in corporate disclosures’ collective contribution to annual price discovery between bad and good news years (40% versus over 60%), even though their total contribution to stock return variance (measured by partial R2s) is similar in good and bad times. These patterns are consistent with managers making offsetting market-moving disclosures in bad news years. Voluntary press releases are a key driver of this disparity in price discovery, adding 3.5% in bad times, while being the top contributor in good times (27.5%). Periodic SEC filings add more to price discovery in bad times than in good times. Perhaps surprisingly, earnings announcements, often viewed as a key channel for releasing bad news, contribute more to price discovery in good than in bad times. Insider trading filings and key information intermediaries do not close the price discovery gap, whereas trading events that likely reflect investor private information do.

Keywords: Disclosure; Qualitative Information; SEC Filings; Externalities; Federal Reserve; Economic Forecasts

JEL Classification: E58, G20, M41, M45