Causal Effect of Information Costs on Asset Pricing Anomalies

57 Pages Posted: 13 Sep 2021 Last revised: 18 Apr 2024

See all articles by Zoran Ivkovich

Zoran Ivkovich

Michigan State University, Department of Finance

Yong Hyuck Kim

California State University Long Beach, Department of Finance

Dmitriy Muravyev

Michigan State University - Department of Finance; Canadian Derivatives Institute

Date Written: February 22, 2021

Abstract

The SEC’s EDGAR introduction slashed the costs of acquiring and trading on accounting information, especially for smaller investors. We both causally identify information costs and assess how they affect stock anomalies. Using the staggered EDGAR introduction, we show that average alphas for 125 accounting anomalies decline substantially, and that the decline explains most of the pre-EDGAR alphas. By contrast, alphas for 80 non-accounting anomalies do not change significantly. Information costs are as substantial as the other limits to arbitrage.

Keywords: Information costs, stock anomalies, EDGAR, limits to arbitrage

JEL Classification: G12, G14

Suggested Citation

Ivkovich, Zoran and Kim, Yong Hyuck and Muravyev, Dmitriy, Causal Effect of Information Costs on Asset Pricing Anomalies (February 22, 2021). Available at SSRN: https://ssrn.com/abstract=3921785 or http://dx.doi.org/10.2139/ssrn.3921785

Zoran Ivkovich

Michigan State University, Department of Finance ( email )

315 Eppley Center
East Lansing, MI 48824-1122
United States

Yong Hyuck Kim (Contact Author)

California State University Long Beach, Department of Finance ( email )

1250 Bellflower Blvd.
College of Business, COB 200, CSULB
Long Beach, CA 90840
United States

Dmitriy Muravyev

Michigan State University - Department of Finance ( email )

315 Eppley Center
East Lansing, MI 48824-1122
United States

Canadian Derivatives Institute ( email )

3000, chemin de la Côte-Sainte-Catherine
Montréal, Québec H3T 2A7
Canada

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