The Russell 1000 and 2000 stock indexes comprise the first 1000 and next 2000 largest firms ranked by market capitalization. Small changes in the capitalizations of firms ranked near 1000 move them between these indexes. Because the indexes are value-weighted, more money tracks the largest stocks in the Russell 2000 than the smallest in the Russell 1000. Using this discontinuity, we find that additions to the Russell 2000 result in price increases and deletions result in price declines. We then identify time trends in indexing effects and the types of funds that provide liquidity to indexers.

Market reactions to non-fundamental news (or no-news) reverse for extreme firm information environments. A one percentage increase in intangible returns for small firms (large firms) lead to a 2.33% decrease (0.70% increase) in monthly returns over the next 12months. The results are robust to firm characteristics adjustments, alternative measures of firm information environment and private information, idiosyncratic risk, and microstructure effects. The results are consistent with the cross-sectional findings of confirmation bias, where investors show stronger bias when the information environment is rich. We derive a model with confirmation bias that further explains the cross-sectional momentum pattern for the majority of firms in the market.

The Russell 1000 and 2000 stock indexes comprise the first 1000 and next 2000 largest firms ranked by market capitalization. Small changes in the capitalizations of firms ranked near 1000 move them between these indexes. Because the indexes are value-weighted, more money tracks the largest stocks in the Russell 2000 than the smallest in the Russell 1000. Using this discontinuity, we find that additions to the Russell 2000 result in price increases and deletions result in price declines. We then identify time trends in indexing effects and the types of funds that provide liquidity to indexers.

We show that analyst behavior changes in response to a randomly assigned shock that exogenously varies the timeliness and cost of accessing mandatory disclosures in the cross-section of investors: analysts reduce coverage and issue less optimistic, more accurate, less bold, and less informative forecasts. Our evidence indicates that analysts reduce a strategic component of their behavior: the changes are stronger among analysts with more strategic incentives like affiliated or retail-focused analysts. We conclude that mandatory disclosure can substitute for analyst information production, which is constrained by investors’ ability to verify forecasts using corporate filings.

Bolton, Scheinkman, and Xiong (2006) model a setting where investors disagree and short‐sales constraints cause pessimistic views of stock prices to be less influential, which leads to speculative stock prices. A theoretical implication of the model is that existing shareholders can exploit the speculative stock prices by (i) designing managerial compensation contracts that encourage short‐term performance, and (ii) subsequently selling their shares to more optimistic investors. We document empirical support for this theory by finding that an exogenous removal (Regulation SHO) of short‐sales constraints curbs the provision of short‐term incentives, an effect reflected in longer CEO compensation duration. The effect is concentrated among stocks with high investor disagreement and short‐term‐oriented institutional ownership. Consistent with prior work, we also find that longer CEO compensation duration leads to longer CEO investment horizons, less overinvestment, and less earnings management. Collectively, our results speak to the contributing role of speculative stock prices in corporate short‐termism. Finally, our study implies that effective policies to curb corporate short‐termism should address stock market speculation and promote mechanisms that tie executive compensation to longer‐term stock price performance.

Access to firms’ innovation outputs determines the extent of knowledge spillover that poses risk to innovation appropriability. We provide plausibly causal evidence that processing costs of financial disclosures, which inform users of the economic value of innovation, play a key role in firms’ management of knowledge spillover. We exploit an exogenous, randomly assigned, and staggered policy shock by the SEC that reduces processing costs of mandatory financial disclosures. In response, firms reduce patenting rates, with the effect concentrated among firms in more competitive industries and with lower costs of capital. Firms also reduce their patent disclosure quality. Our results suggest firms rely more on trade secrecy as their innovation property protection mechanism. Lower processing costs of financial disclosures affect neither innovation inputs nor voluntary disclosure practices. Our results show that firms strategically manage access to their innovation outputs through financial disclosures, patent disclosures, and trade secrecy to curb knowledge spillover.

We provide plausibly identified evidence for the role of investor disagreement in asset pricing. Our natural experiment exploits the staggered implementation of the Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system, which induces a reduction in investor disagreement. Consistent with models of investor disagreement, EDGAR inclusion helps resolve disagreement around information events, leading to stock price corrections. The reduction in disagreement following EDGAR inclusion also reduces stock price crash risk, especially among stocks with binding short‐sale constraints and high investor optimism.