Demand for Information and Stock Returns: Evidence from EDGAR
62 Pages Posted: 22 Mar 2019 Last revised: 31 Mar 2020
Date Written: November 13, 2019
This paper empirically shows that information acquisition affects stock returns by reducing firm-level information asymmetry. When firms disclose material information that was known by insiders, demand for information reduces the asymmetric information faced by uninformed investors and lowers the stock returns persistently. The effect is much stronger for both unexpectedly good and bad news than for anticipated news, consistent with the information asymmetry reduction channel. Moreover, demand for information has stronger effects when investors are geographically close to firm headquarters or have prior experience in collecting firm-specific information, suggesting that the cost of information processing affects information asymmetry. Furthermore, I explore an exogenous variation in information acquisition using the Northeast Blackout of 2003 as a natural experiment, and identify its causal effect on information asymmetry in a difference-in-differences setting.
Keywords: Information, Investor Attention, Information Asymmetry, Asset Prices, EDGAR
JEL Classification: G12
Suggested Citation: Suggested Citation