Does Information Intensity Matter for Stock Returns? Evidence from Form 8-K Filings
Management Science, Forthcoming
72 Pages Posted: 4 Jan 2012 Last revised: 13 Dec 2016
Date Written: October 15, 2015
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 a return spread of 4.3% per year. After adjusting for the Fama-French three factors and the momentum factor, the abnormal return remains 4.4% per year. These novel findings suggest that, due to the dynamic nature of information arrival, the frequency/quantity of information is an important source affecting the 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.
Keywords: Incomplete Information and Learning; SEC Current Report; Form 8-K; Information Intensity; Cross-Sectional Stock Returns
JEL Classification: G12, G14, D83
Suggested Citation: Suggested Citation