The Effectiveness of Regulation Fd

Abstract

We examine whether Regulation FD has reduced the informativeness of analysts' information outputs. For a sample of financial analysts' earnings forecasts and recommendations released between October 23, 1999 and October 23, 2001, we show that in the post-Regulation period the absolute price impact of information disseminated by financial analysts is lower by 32%. We also show that the drop in price impact varies systematically with brokerage house and stock characteristics related to the level of selective disclosure prior to Reg FD. Based on the time-series and cross-sectional evidence we conclude Regulation FD has been effective in curtailing selective disclosure.

Keywords: capital markets, financial analysts, government policy and regulation

JEL Classification: G14, G28, G29, M41