Short interest is currently required to be disclosed twice per month, but regulators have sought to increase this frequency. Meanwhile, short interest information from private third‐party vendors has emerged to meet investor demand on a daily basis. We find that daily private‐sector data strongly predict bimonthly regulatory disclosure. Furthermore, private‐sector data help price discovery, albeit with modest economic magnitude. Investors tend to underreact to the information content of private‐sector data mainly due to limits to arbitrage rather than market inattention. Despite the costly access to private‐sector data, we find no evidence that retail investors are harmed in their trades. Overall, our findings highlight the interplay between private‐sector and regulatory solutions in enhancing financial market transparency

We examine whether the post-earnings announcement drift (PEAD) varies cross-sectionally with short-horizon return predictability from order flows, which characterizes the information environment and reflects the extent to which information is efficiently impounded in prices. We first demonstrate that this proxy for market efficiency (developed by Chordia, Roll, and Subrahmanyam 2008) captures the degree of market frictions that limit arbitrage activities. We then present evidence that the inverse of short-horizon return predictability is negatively associated with the PEAD and remains statistically and economically significant after controlling for a wide range of explanatory variables used in prior research. Finally, although we find that profits of implementing the PEAD trading strategy are significantly reduced by transaction costs, we demonstrate that profits continue to remain statistically and economically significant for the less efficient firms that face otherwise higher barriers to arbitrage. Our results indicate that short-horizon return predictability from order flows better explains stock returns after earnings announcements