Life in the fast lane: Investor sophistication and information flow

Abstract

Prior literature has commonly used institutional ownership or trade size as proxies for investor sophistication. We propose an alternative measure of investor sophistication based on Internet connectivity. Using a dataset that tracks user requests for filings stored in the SEC EDGAR database, we document a positive association between the percent of high speed Internet downloads of newly released 10-K, 10-Q, and 8-K filings and stock price reaction to the release of these filings. The relation between the percent of high speed downloads and filing date price reaction is greater when the firm is more complicated and the disclosure is more complex. All the above results similarly hold for trading volume. We further provide evidence that a greater percent of high speed downloads is associated with a lower price drift subsequent to the release of a 10-K, 10-Q, and 8-K filing on EDGAR.