Differential Response of Small versus Large Investors to 10-K Filings on EDGAR

Abstract

In this paper we examine the effect of filing form 10-K on EDGAR on the incidence of small and large trades. We find that the change to EDGAR filings results in significant increases in the volume of small, but not large trades, during the five-day window (−1, 3) around the filing date. While our data does not allow us to directly examine the trading profits and transactions costs of investors, we are able to examine whether the trading patterns reflect information available in the 10-K differently in the pre- and post-EDGAR period. Using stock return as a proxy for the information content of the 10-K, our results show that post-EDGAR small trades are more likely to reflect that information, i.e., more likely than in the pre-EDGAR period to be buys (sells) when returns in the five-day window after the trade are positive (negative). We also find that while the product of the net buys (sells) and the price change over the five-day window after the trade for small trades in the post-EDGAR period is still less than that for large trades, the difference between the two groups decreased significantly. Consequently, while we cannot directly examine the profitability of these transactions, the evidence presented is consistent with EDGAR improving the trading outcomes of small vis-a`-vis large investors.