What do investors need to know about SEC news?

Abstract

This study examines how SEC-related news, disseminated through press releases and Wall Street Journal articles, shapes investor sentiment and market behavior. Using textual analysis, we identify fraud-related themes and construct fraud and sentiment indices. The fraud index strongly predicts market default risk, while the sentiment index shows a persistently pessimistic tone. Institutional investors react strongly to SEC news, especially during high fraud exposure and negative sentiment, while retail investors show minimal response. SEC news drives stock price declines, with finance and hard-to-arbitrage stocks experiencing stronger effects. These findings underscore the market's sensitivity to regulatory disclosures and enforcement actions.