Effect of Regulation Fd on Asymmetric Information

Posted: 29 Jun 2004

See all articles by Chun I. Lee

Chun I. Lee

Loyola Marymount University - Department of Finance and Computer Information Systems

Leonard Rosenthal

Bentley University - Department of Finance

Kimberly C. Gleason

American University of Sharjah

Abstract

On 23 October 2000, the U.S. SEC put Regulation Fair Disclosure into effect. It requires companies to disseminate releases of material information to all investors, not selectively. Proponents of Regulation FD argued that the flow of information would improve; critics of the regulation asserted that Regulation FD would increase volatility and reduce the quantity of information being released into the market, resulting in an increase in asymmetric information. We examined components of the bid-ask spread surrounding news releases and trading activity by retail versus institutional investors before and after the institution of Regulation FD. Our results indicate no significant increase in volatility after Regulation FD, and we found little or no increase in the adverse-selection component of bid-ask spreads. Overall, our results do not support critics of Regulation FD.

Keywords: Advocacy, Regulatory, and Legislative Issues, Regulatory and Legislative Activities, Financial Markets: Market Microstructure

Suggested Citation

Lee, Chun I. and Rosenthal, Leonard and Gleason, Kimberly C., Effect of Regulation Fd on Asymmetric Information. Financial Analysts Journal, Vol. 60, No. 3, pp. 79-89, May/June 2004. Available at SSRN: https://ssrn.com/abstract=559163

Chun I. Lee (Contact Author)

Loyola Marymount University - Department of Finance and Computer Information Systems ( email )

Los Angeles, CA 90045
United States

Leonard Rosenthal

Bentley University - Department of Finance ( email )

175 Forest Street
Waltham, MA 02154
United States

Kimberly C. Gleason

American University of Sharjah ( email )

P.O. Box 26666
Sharjah
United Arab Emirates

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