Does Context Matter? Evidence from Internet Research Activity by Sophisticated Investors

52 Pages Posted: 31 Dec 2019 Last revised: 13 Jul 2020

See all articles by Alan Kwan

Alan Kwan

The University of Hong Kong

Christina Zhu

University of Pennsylvania - The Wharton School

Date Written: July 9, 2020

Abstract

Using a unique dataset of internet research on business media sites matched to the identities of investors, we argue that broadly available media content can help sophisticated investors generate private information. Prior work finds that adverse selection increases at earnings announcements because some traders make superior assessments of firm value based on the disclosure. We find a positive relation between sophisticated investors’ pre-earnings announcement gathering of industry-relevant, “contextual” information and illiquidity at the time of the announcement, suggesting this specific source of public information provides some investors with a comparative advantage in interpreting earnings announcements.

Keywords: earnings announcements, adverse selection, sophisticated investors, media, liquidity, information acquisition, technology

JEL Classification: G14, M41, D83

Suggested Citation

Kwan, Alan and Zhu, Christina, Does Context Matter? Evidence from Internet Research Activity by Sophisticated Investors (July 9, 2020). Available at SSRN: https://ssrn.com/abstract=3501801 or http://dx.doi.org/10.2139/ssrn.3501801

Alan Kwan

The University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

Christina Zhu (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

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