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

See all articles by Xiaofei Zhao

Xiaofei Zhao

Georgetown University - Robert Emmett McDonough School of Business

Date Written: October 15, 2015

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 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

Zhao, Xiaofei, Does Information Intensity Matter for Stock Returns? Evidence from Form 8-K Filings (October 15, 2015). Management Science, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1916471 or http://dx.doi.org/10.2139/ssrn.1916471

Xiaofei Zhao (Contact Author)

Georgetown University - Robert Emmett McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States

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