Article ID Journal Published Year Pages File Type
5102250 The North American Journal of Economics and Finance 2017 19 Pages PDF
Abstract
We investigate the effect of financial reporting complexity on stock comovement. We hypothesize that investors deal with complexity increases by acquiring low cost information. This information is typically informative not just about the firm of interest but also about other firms with similar fundamentals, which generates excess comovement. We find that increases in 10-Q word counts, a complexity proxy, are consistently followed by increases in 1) internet searches about the firm and 2) R2s from regressions between the firm's returns and its peers'. On a large scale, complexity-induced comovement might hinder investors' ability to discriminate across stocks and identify business innovators.
Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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