Lazy Prices

Lauren Cohen; Christopher J. Malloy; Quoc Hung Nguyen

doi:10.1111/jofi.12885

Journal of Finance Vol. 75 No. 3 2020

Lazy Prices

Lauren Cohen; Christopher J. Malloy; Quoc Hung Nguyen^{1,2,3,4,5,6,7,8,9,10,11,12,13,14}

¹ DePaul University · ² Western University · ³ Thales (Portugal) · ⁴ Parsons (United States) · ⁵ Jones College · ⁶ MARK Resources (United States) · ⁷ Craig Technologies (United States) · ⁸ Stefan University · ⁹ Merrill (United States) · ¹⁰ Ospedale San Pietro Fatebenefratelli · ¹¹ Christ University · ¹² Chalmers University of Technology · ¹³ University of Hong Kong · ¹⁴ Kelly Services (United States)

Abstract

Using the complete history of regular quarterly and annual filings by U.S. corporations, we show that changes to the language and construction of financial reports have strong implications for firms’ future returns and operations. A portfolio that shorts “changers” and buys “nonchangers” earns up to 188 basis points per month in alpha (over 22% per year) in the future. Moreover, changes to 10‐Ks predict future earnings, profitability, future news announcements, and even future firm‐level bankruptcies. Unlike typical underreaction patterns, we find no announcement effect, suggesting that investors are inattentive to these simple changes across the universe of public firms.

DOI: 10.1111/jofi.12885
Volume: 75
Issue: 3
Pages: 1371-1415
Language: en
Sources: openalex bibtex:phds-export.bib crossref

Lazy Prices

Abstract

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