Do Retail Investors Use SEC Filings? Evidence from EDGAR Search

Abstract

We address whether retail investors use SEC filings when making trading decisions. We find that retail investor trading, both buying and selling, is significantly related to EDGAR search for 10-K and 10-Q filings, more so than to Google search. This is true for firms with high or low visibility, firm-days with and without press coverage, and during or excluding earnings-announcement and filing windows. The results of lead-lag and two-stage-least square analyses are consistent with search leading to trade. In addition, the direction of retail investors’ trading is consistent with the direction of earnings changes reported in the downloaded filings, suggesting that retail investor trading direction is influenced by the accounting information they read in the filings. We also find that the significantly positive relation between retail trading and EDGAR search is strongest for the most easily readable 10-K and 10-Q filings. Finally, we find that retail investor trading-predicted returns are higher on days with heavier EDGAR search, consistent with retail investors making more profitable, or at least less loss making, trades when doing more research on EDGAR. Overall, our results provide strong evidence that retail investors use EDGAR filings data in making their trading decisions.