Jackson, Jiang & Mitts on Information Dissemination

Robert J. Jackson Jr., Wei Jiang, and Joshua Mitts have posted How Quickly Do Markets Learn? Private Information Dissemination in a Natural Experiment on SSRN with the following abstract:

Using data from a unique episode in which the SEC disseminated securities filings to a small group of private investors before releasing them to the public, we provide a direct test of the process through which private information is impounded into stock prices. Because the delay between the time when the filings were privately distributed and when the filings were made public was randomly distributed, our setting provides a rare natural experiment for examining how markets process new private information. We find that it takes minutes — not seconds — for informed traders to incorporate fundamental information into stock prices. We also show that the private investors who had early access to fundamental information profited more, and convey more information into stock prices, when the delay before the filings are released to the public is longer. More importantly, the rate at which information is impounded into stock prices is more correlated with the length of the predicted delay before public release than the actual delay, suggesting that informed investors trade strategically. Our study serves as the modern counterpart to Koudijs’s (2014a) study on insider trading on eighteenth-century stock exchanges — except, in our case, week-long sailing voyages have been replaced by modern electronic transmission as the conduit for information flows.