Journal article
The freedom of information act and the race toward information acquisition
A Gargano, AG Rossi, R Wermers
Review of Financial Studies | OXFORD UNIV PRESS INC | Published : 2017
DOI: 10.1093/rfs/hhw035
Abstract
We document a little-known source of information exploited by sophisticated institutional investors: the Freedom of Information Act (FOIA), a law that allows for the disclosure of previously unreleased information by the U.S. Government. Through FOIA requests, we identify several sophisticated institutional investors, chiefly hedge funds, that request information from the FDA. We explore the type of information commonly requested by funds and the types of firms that are targets of FDA-FOIA requests and show that FOIA requests allow these investors to generate abnormal returns. Thus, we illustrate a detailed mechanism through which costly information becomes incorporated into market prices.
Grants
Funding Acknowledgements
The paper has benefited from comments made at presentations at the 17th Annual Texas Finance Festival, the ASUSonoranWinter Finance Conference, the UBC Winter Finance Conference, the Western Finance Association Annual Meeting, the European Finance Association Annual Meeting, the Finance Down Under Conference, the 7th Annual Hedge Fund Research Conference, the Financial Research Network Conference, the FMA Asian Meeting, and seminar participants at Queensland University of Technology. We are particularly grateful to Renee Adams, Gurdip Bakshi, Oliver Boguth (the FDU discussant), Stephen Brown, Julien Cujean, Laurent Fresard, Vyacheslav Fos, Neal Galpin, Thomas Gilbert, Bruce Grundy, Russell Jame, Kathleen Hanley, Christopher Hrdlicka, Kai Li, Michael Lemmon (the ASU Sonoran Conference discussant), Spencer Martin, Andreas Neuhierl (the 2015 EFA discussant), Juan-Sotes Paladino, Seongkyu Park (the 2015 FMA Asian Meeting discussant), Lubos Pastor, William Mullins, Fabrice Riva (the 7th Annual Hedge Fund Research Conference discussant), Riccardo Sabbatucci, Shrihari Santosh, Breno Schmidt (the WFA discussant), Clemens Sialm, David Solomon (the UBC Winter Finance Conference discussant), Sheridan Titman, Kumar Venkataraman (the 17th Annual Texas Finance Festival discussant), Stefan Zeume, and Zhuo Zhong for insightful comments and suggestions. Antonio Gargano acknowledges support from the Faculty Research Grant funded by the University of Melbourne. Bill Zu and Jinming Xue provided excellent research assistance. Supplementary data can be found on The Review of Financial Studies web site.