Abstract
Form 8-K reports filed with the SEC often exhibit lags raising the potential for information leakage that could be exploited by informed traders. This study provides evidence that institutional investors are able to capitalize on 8-K filing lags. Consistent with extant theories, this study documents that institutional investors trade based on the leaked sign of the event news and then (partially) reverse their trades when the news become public. Moreover, the likelihood of the latter trading strategy increases with the filing lag. We also show that trading volume, equity return volatility and the bid-ask spread increase around the event date and the filing date. Further, trading volume and equity return volatilities around the filing date decrease with the filing lag indicating lower information content of the news.
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