Can Long-Term Institutional Owners Improve Market Efficiency in Parsing Complex Legal Disputes?
67 Pages Posted: 15 Feb 2020 Last revised: 16 Apr 2020
Date Written: January 15, 2020
Long-horizon institutional investors can help mitigate information asymmetries around securities class action (SCA) lawsuits. We find that the machine readability of SCA complaint filings can predict the outcome and duration of class actions. Long-term institutional investor ownership leads to a more positive post-SCA announcement price reaction and increases the volatility ratio of prices as a measure of price informativeness. Furthermore, there is a significant interaction effect between long-term institutional ownership and SCA complexity on price informativeness consistent with a superior information processing ability about complex corporate events affecting portfolio firms.
Keywords: Institutional ownership, Securities class actions, Market efficiency, Natural language processing
JEL Classification: G30, G14, G32, K41
Suggested Citation: Suggested Citation