Information Management in Financial Markets: Implications for Stock Momentum and Volatility

Abstract

Using a dataset of over half a million corporate press-releases, I study patterns of private information disclosures by the top U.S. public companies. I find that the amount of positive information released by a company is positively related to both its future stock performance and future positive releases, suggesting that companies tend to ration the delivery of positive news and create sustainable price trends. This effect is stronger for firms with lower information transparency. The segmentation of positive information contributes significantly to the Jegadeesh and Titman momentum effect among winner stocks. At the same time, private information disclosures are negatively related to the arrival of public information, supporting the hypothesis that private information releases are timed to mitigate public information shocks. Accordingly, I find that stock volatility is significantly lower for firms that use reserves of positive private information as insurance against unanticipated negative events.