Acquiring and Trading on Complex Information: How Hedge Funds Use the Freedom of Information Act

50 Pages Posted: 1 Sep 2015 Last revised: 3 Sep 2015

See all articles by April Klein

April Klein

New York University (NYU) - Department of Accounting

Tao Li

University of Florida - Department of Finance, Insurance and Real Estate

Date Written: August 2015

Abstract

Using the Freedom of Information Act, hedge funds receive records from the Food and Drug Administration about new product approvals, factory inspections, and complaints. We use the funds' receipt of this information to empirically test implications of theories about investors with bounded rationality acquiring complex information for trading purposes. Consistent with theory, we find evidence that the magnitude of hedge fund trades is positively related to the funds' prior knowledge about the target firm and the FOIA process, and to the short-term abnormal stock returns derived from trading.

Keywords: Freedom of Information Act, FDA, Complex Information, Bounded rationality, Hedge funds, Trading

Suggested Citation

Klein, April and Li, Tao, Acquiring and Trading on Complex Information: How Hedge Funds Use the Freedom of Information Act (August 2015). Available at SSRN: https://ssrn.com/abstract=2653879 or http://dx.doi.org/10.2139/ssrn.2653879

April Klein

New York University (NYU) - Department of Accounting ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012
United States

Tao Li (Contact Author)

University of Florida - Department of Finance, Insurance and Real Estate ( email )

Warrington College of Business
Gainesville, FL 32611
United States

HOME PAGE: http://warrington.ufl.edu/contact/profile.asp?WEBID=7628

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