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The Impact of Regulation Fair Disclosure: Trading Costs and Information Asymmetry

Published online by Cambridge University Press:  06 April 2009

Venkat R. Eleswarapu ,
Rex Thompson  and
Kumar Venkataraman
Venkat R. Eleswarapu
Affiliation:
[email protected], Edwin L. Cox School of Business, Southern Methodist University, P.O. Box 750333, Dallas, TX 75275–0333.
Rex Thompson
Affiliation:
[email protected], Edwin L. Cox School of Business, Southern Methodist University, P.O. Box 750333, Dallas, TX 75275–0333.
Kumar Venkataraman
Affiliation:
[email protected], Edwin L. Cox School of Business, Southern Methodist University, P.O. Box 750333, Dallas, TX 75275–0333.
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Abstract

In October 2000, the Securities and Exchange Commission (SEC) passed Regulation Fair Disclosure (FD) in an effort to reduce selective disclosure of material information by firms to analysts and other investment professionals. We find that the information asymmetry reflected in trading costs at earnings announcements has declined after Regulation FD, with the decrease more pronounced for smaller and less liquid stocks. Return volatility around mandatory announcements is also lower but overall information flow is unchanged when mandatory and voluntary announcements are combined. Thus, the SEC appears to have diminished the advantage of informed investors, without increasing volatility.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 39 , Issue 2 , June 2004 , pp. 209 - 225
Copyright
Copyright © School of Business Administration, University of Washington 2004

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