Copycatting and Public Disclosure: Direct Evidence from Peer Companies’ Digital Footprints
Posted: 8 Nov 2018 Last revised: 10 Feb 2019
Date Written: November 8, 2018
This study tackles the empirical challenge of directly testing how companies imitate peers’ strategies revealed in public disclosures. We track the digital footprints of investment companies that view peer companies’ portfolio disclosures on the Securities and Exchange Commission (SEC) EDGAR website and examine subsequent trading decisions. Viewing a peer’s portfolio increases significantly the likelihood of engaging in the same trades as the disclosing peer. Copycat trading is more pronounced when peer disclosure contains more proprietary information. Interestingly, copycatting is not naïve imitation but involves research and sophisticated screening. Copycat companies can identify profitable trades that outperform other disclosed trades by 6.7 percent annually. Further, disclosure is especially costly when firms are imitated by more sophisticated peers and when the disclosing company takes longer to build its positions. Overall, our study draws a granular picture of copycatting activities unexplored in the literature and advances our understanding of the proprietary costs of disclosure.
Keywords: Copycat, Disclosure, SEC EDGAR, Hedge Fund, Investment Company, Investment Research, Proprietary Cost
JEL Classification: G11, G14, G23
Suggested Citation: Suggested Citation