Copycatting and Public Disclosure: Direct Evidence from Peer Companies’ Digital Footprints

Posted: 8 Nov 2018 Last revised: 10 Feb 2019

See all articles by Sean Cao

Sean Cao

Georgia State University - J. Mack Robinson College of Business

Kai Du

Pennsylvania State University - Department of Accounting; U.S. Securities and Exchange Commission

Baozhong Yang

Georgia State University - Robinson College of Business

Alan Liang Zhang

Georgia State University - Robinson College of Business

Date Written: November 8, 2018

Abstract

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

Cao, Sean S. and Du, Kai and Yang, Baozhong and Zhang, Liang, Copycatting and Public Disclosure: Direct Evidence from Peer Companies’ Digital Footprints (November 8, 2018). Available at SSRN: https://ssrn.com/abstract=3280744 or http://dx.doi.org/10.2139/ssrn.3280744

Sean S. Cao

Georgia State University - J. Mack Robinson College of Business ( email )

P.O. Box 4050
Atlanta, GA 30303-3083
United States

Kai Du

Pennsylvania State University - Department of Accounting ( email )

University Park, PA 16802-3306
United States

U.S. Securities and Exchange Commission ( email )

450 Fifth Street, NW
Washington, DC 20549-1105
United States

Baozhong Yang (Contact Author)

Georgia State University - Robinson College of Business ( email )

35 Broad Street
Atlanta, GA 30303-3083
United States
404-413-7350 (Phone)
404-413-7312 (Fax)

HOME PAGE: http://www2.gsu.edu/~fncbyy/index.html

Liang Zhang

Georgia State University - Robinson College of Business ( email )

35 Broad Street NW
Suite 1242
Atlanta, GA 30303
United States

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