Demand for Information and Stock Returns: Evidence from EDGAR

Abstract

This paper empirically shows that information acquisition affects stock returns by reducing firm-level information asymmetry. When firms disclose material information known by insiders, information acquisition reduces asymmetric information and lowers stock returns. The effect is stronger for both unexpectedly good and bad news relative to anticipated news and when investors' cost of information processing is lower. Using the Northeast Blackout of 2003 as a natural experiment, I explore an exogenous shock in information acquisition and show causal evidence that information acquisition reduces information asymmetry.

Keywords: Information, Investor Attention, Information Asymmetry, Asset Prices, EDGAR

JEL Classification: G12