Information Acquisition and Expected Returns: Evidence from EDGAR Search Traffic

Using a novel dataset containing investors' access of company filings through the SEC's EDGAR system, we show that the abnormal number of IPs searching for firms' financial statements strongly predicts future stock returns and firm fundamentals. A long-short portfolio based on our measure of information acquisition activity generates a monthly abnormal return of 80 basis points that is not reversed in the long run. Consistent with theories of endogenous information acquisition, the return predictability is more pronounced for firms with larger and lengthier financial filings that are more costly to process, and for IPs searching current and historical filings simultaneously. Our findings suggest investors' costly information acquisition activities reveal their private expectation of firm value.