Publication Type

Journal Article

Version

submittedVersion

Publication Date

8-2022

Abstract

This paper examines expected return information embedded in investors' information acquisition activity. Using a novel dataset containing investors' access of company filings through SEC's EDGAR system, we reverse engineer their expectations over future payoffs and show that the abnormal number of IPs searching for firms' financial statements strongly predict future returns. The return predictability stems from investors allocating more effort to firms with improving fundamentals and following exogeneous shock to underpricing. A long-short portfolio based on our measure of information acquisition activity generate monthly abnormal return of 80 basis points and does not reverse over the long-run.. In addition, the return predictability is stronger among firms with larger and lengthy financial filings that are more costly to process. Collectively, these findings support theoretical predictions that costly information acquisition reveals the value of information.

Keywords

Information Acquisition, EDGAR Search, Return Predictability, Market Efficiency

Discipline

Finance and Financial Management | Portfolio and Security Analysis

Research Areas

Finance

Publication

Journal of Economic Dynamics and Control

Volume

141

First Page

1

Last Page

20

ISSN

0165-1889

Identifier

10.1016/j.jedc.2022.104384

Publisher

Elsevier

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1016/j.jedc.2022.104384

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