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We compare the optimal trading strategy of an informed speculator when he can trade ahead of incoming news (is \"fast\"), versus when he cannot (is \"slow\"). We find that speed matters: the fast speculator's trades account for a larger fraction of trading volume, and are more correlated with short-run price changes. Nevertheless, he realizes a large fraction of his profits from trading on long-term price changes. The fast speculator's behavior matches evidence about high-frequency traders. We predict that stocks with more informative news are more liquid even though they attract more activity from informed high-frequency traders.

This study examines the effects of financial reporting complexity on investors' trading behavior. I find that more complex (longer and less readable) filings are associated with lower overall trading, and that this relationship appears due to a reduction in small investors' trading activity. Additional evidence suggests that the association between report complexity and lower abnormal trading is driven by both cross-sectional variation in firms' disclosure attributes and variations in disclosure complexity over time. Given regulatory concerns over plain English disclosures and the trend toward more disclosure, my investigation into the effects of reporting complexity on small and large investors should be of interest to regulators concerned with reporting clarity and leveling the playing field across classes of investors.

We hypothesize that individual investors treat trading as a fun and exciting gambling activity, implying substitution between this activity and alternative gambling opportunities. To examine this hypothesis, we study the lottery jackpots and the trading of individual investors in Taiwan. When the jackpots exceed 500 million Taiwan dollars, the trading volume decreases between 5.2% and 9.1% among stocks preferred by individual investors and between 6.8% and 8.6% among lottery-like stocks. The decline in individual buy volume is statistically indistinct from the decline in sell volume. Large jackpots are associated with less trading in options with high sensitivity to volatility.

Previous research uses negative word counts to measure the tone of a text. We show that word lists developed for other disciplines misclassify common words in financial text. In a large sample of 10-Ks during 1994 to 2008, almost three-fourths of the words indentified as negative by the widely used Harvard Dictionary are words typically not considered negative in financial contexts. We develop an alternative negative word list, along with five other word lists, that better reflect tone in financial text. We link the word lists to 10-K filing returns, trading volume, return volatility, fraud, material weakness, and unexpected earnings.

We provide new empirical evidence for the way in which financial markets process information. Our results rely critically on high-frequency intraday price and volume data for the S&P 500 equity portfolio and U.S. Treasury bonds, along with new econometric techniques, for making inference on the relationship between trading intensity and spot volatility around public news announcements. Consistent with the predictions derived from a theoretical model in which investors agree to disagree, our estimates for the intraday volume-volatility elasticity around important news announcements are systematically belowunity. Our elasticity estimates also decrease significantly with measures of disagreements in beliefs, economic uncertainty, and textual-based sentiment, further highlighting the key role played by differences-of-opinion.

Does limited attention among investors affect stock returns? We compare the response to earnings announcements on Friday, when investor inattention is more likely, to the response on other weekdays. If inattention influences stock prices, we should observe less immediate response and more drift for Friday announcements. Indeed, Friday announcements have a 15% lower immediate response and a 70% higher delayed response. A portfolio investing in differential Friday drift earns substantial abnormal returns. In addition, trading volume is 8% lower around Friday announcements. These findings support explanations of post-earnings announcement drift based on underreaction to information caused by limited attention.

This paper examines how cultural differences influence the returns of momentum strategies. Cross-country cultural differences are measured with an individualism index developed by Hofstede (2001), which is related to overconfidence and self-attribution bias. We find that individualism is positively associated with trading volume and volatility, as well as to the magnitude of momentum profits. Momentum profits are also positively related to analyst forecast dispersion, transaction costs, and the familiarity of the market to foreigners, and negatively related to firm size and volatility. However, the addition of these and other variables does not dampen the relation between individualism and momentum profits.

We examine the association between changes in companies’ textual risk disclosures in 10-K filings and changes in stock market and analyst activity around the filings. We find that annual increases in risk disclosures are associated with increased stock return volatility and trading volume around and after the filings. Increases in risk disclosures are also associated with more dispersed forecast revisions around the filings. In contrast to prior literature documenting resolved uncertainties in response to various types of company disclosures, our findings suggest that textual risk disclosures increase investors’ risk perceptions. However, the results are less pronounced for firm-level disclosures that deviate from those of other companies in the same industry and year. These results lend support for critics’ arguments that firm-level risk disclosures are more likely to be boilerplate.

This paper examines the impact on firm value created by investor reaction to same day news of corporate social responsibility (CSR) and corporate social irresponsibility (CSiR) activities. First, using trading volume, the authors establish that the perceived value of moral capital generated by news involving institutional (e.g., environmental and community) stakeholders is less clear to investors than that of the news involving technical (e.g., customers and employees) stakeholders. Subsequently, the authors analyze abnormal returns from 565 unique firm events—each comprising at least one positive and one negative stakeholder news item. Using signaling theory, the authors demonstrate that news of the number of CSR activities involving institutional groups counteracts the effects of same day CSiR news in an inverted U-shaped fashion. In contrast, they find that news of the number of CSR activities involving technical groups mitigates the effects of same day CSiR news in a U-shaped fashion.

I provide evidence that stocks experiencing unusually low trading volume over the week prior to earnings announcements have more unfavorable earnings surprises. This effect is more pronounced among stocks with higher short-selling constraints. These findings support the view that unusually low trading volume signals negative information, since, under short-selling constraints, informed agents with bad news stay by the sidelines. Changes in visibility or risk-based explanations are insufficient to explain the results. This evidence provides insights into why unusually low trading volume predicts price declines.