DP16476 Filing Speed, Information Leakage, and Price Formation

Author(s): Jeffrey L Callen, Ron Kaniel, Dan Segal
Publication Date: August 2021
Keyword(s): 8K reports, Filing Lag, Institutional Trading, private information
JEL(s):
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16476

This study investigates the price discovery process in equity markets with informed institutional investors. Consistent with extant theories, we show empirically that institutional investors, in contrast to retail investors, trade based on the leaked sign of unanticipated news and then (partially) reverse their trades when the news become public. We also find that the longer the leakage period for institutional investors to exploit, the less informative is the news when it becomes public. These results are robust to controls for firm press releases and news articles and endogeneity concerns.