Research by Jonathan L. Rogers and Sarah L. C. Zechman of the University of Colorado, Boulder, and Chicago Booth's Douglas J. Skinner suggests that stock markets move in response to media reports of SEC disclosures as well as to initial public dissemination via the SEC website.
Media reports of insider trades ought to be considered old news. After all, the US Securities and Exchange Commission is the first to disclose insider stock purchases and sales, and the media merely repeat those disclosures. Yet research by Jonathan L. Rogers and Sarah L. C. Zechman of the University of Colorado, Boulder, and Chicago Booth’s Douglas J. Skinner suggests that stock markets move in response to media reports of SEC disclosures as well as to initial public dissemination via the SEC website.
Rogers, Skinner, and Zechman look specifically at media coverage of stock trades by corporate insiders. The fact that purchases and sales by directors and top corporate executives get less attention than earnings reports makes insider-trading reports a better setting to study the impact of the media on financial markets, the researchers argue.
When a company reports quarterly earnings, the CEO or CFO typically hosts a conference call with securities analysts, attempting to influence how investors interpret and respond to the data. Media outlets often follow earnings reports with instant reactions from analysts and, sometimes, commentary from reporters. That additional content makes it difficult to separate the effect of earnings announcement–related content from the way that disclosure is disseminated by the media, the researchers suggest.
In contrast, news about insider trades is relatively straightforward. The researchers write, “The media coverage that immediately follows insider filings simply regurgitates facts about the trade—who made the trade, when, how many shares, and at what price—without generating additional content.”
The SEC requires a company to disclose trades in its stock made by top officers and directors within two business days, and to post those disclosures on the SEC’s online EDGAR electronic filing system. Filings take seconds to be accepted by EDGAR, and then another 30–40 seconds for EDGAR to post them publicly. An additional 20–30 seconds typically pass before the first media report appears, but sometimes the lag is much longer.
Rogers, Skinner, and Zechman examined 16,657 insider-trading filings made on EDGAR and reported by the Dow Jones News Service between March 1, 2012, and December 31, 2013. They were able to pinpoint, to the second, the timing of both the SEC filing and subsequent media coverage.
They find that intraday stock prices clearly responded to the insider-trading news at the time it was disseminated by Dow Jones, beyond the initial reaction to posting to the EDGAR website. Also, prices responded more strongly to news reports of insider purchases when Dow Jones published relatively quickly, compared to when there was a longer delay.
If the market responded fully when the information first became available through EDGAR, the researchers argue, there would be no effect of the Dow Jones reports on stock prices. Instead, the market reaction they observe suggests that investors’ information-processing abilities are limited, and that certain investors respond to more visible news reports, rather than to public, but less visible, EDGAR filings.
Prompt media coverage of an EDGAR filing seems to help investors respond to the disclosure more quickly. “Prices adjust more rapidly to SEC filings of insider trading news when there is accompanying media coverage and that coverage is more timely, both of which suggest that the media plays an economically important role in the price formation process in securities markets,” the researchers write.
Old news is good news—or, at least, useful news—after all.
Jonathan L. Rogers, Douglas J. Skinner, and Sarah L. C. Zechman, “The Role of the Media in Disseminating Insider-Trading Activity,” Chicago Booth research paper No. 13-34, April 2015.
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