Trading Prior to the Disclosure of Material Information : Evidence from Regulation Fair Disclosure Form 8-Ks

Regulation Fair Disclosure (Reg FD) Form 8-K filings provide a venue where managers release information to the market as a whole that they designate as being material. Using this setting, we study trading patterns immediately prior to the public disclosure of material information. We offer three main results. First, using both intra-day and daily trading data, we find abnormal trading volume of 21 percent (13 percent) in the hour (day) prior to the public disclosure, respectively. Second, we find that this pre-disclosure abnormal trading volume is concentrated in firms that are smaller, have more growth opportunities, issue fewer voluntary disclosures, and have weaker external monitoring. Finally, we find that this pre-disclosure volume is concentrated in subsamples in which the information relates to a firm's material contracts, a firm holds investor/analyst conferences, and there is insider trading activity in a firm's shares. Our results do not concentrate in a small number of firms or industries, and do not appear to be explained by the form through which managers first release the material information (e.g., Form 8-K, press release, website posting, or social media). Our results are also robust to controlling for the firm's other filings and peer filings that occur around the disclosure. Overall, the trading patterns we document may show that, inconsistent with the spirit of Reg FD, a subset of investors trade on information managers deem material prior to its broad, public release