Empirical analysis reveals heterogeneous stock return signals from SEC FOIA requests, indicating sophisticated investors actively trade on private regulatory inquiries.
Key Points
To examine whether Freedom of Information Act requests submitted to the SEC contain value-relevant information about public companies and whether sophisticated market participants trade on this data.
Analyzed SEC Freedom of Information Act (FOIA) requests categorized by requester identity, including proxy agents, anonymous requesters, institutional investors, and intellectual property entities.
Examined subsequent stock return patterns and trading behavior among institutional investors and short sellers to test the direct-trading hypothesis.
FOIA requests submitted anonymously or by proxy agents investigating ongoing regulatory inquiries are negatively correlated with future stock returns.
FOIA requests from institutional investors and intellectual property entities are positively associated with future stock returns.
Institutional investors and short sellers actively execute trades using information acquired through FOIA filings, supporting the direct-trading hypothesis.