Lazy Prices

Lauren Cohen, Christopher J. Malloy, Quoc Hung NguyenFinance金融中介UTD24

Journal of Finance2020-01-28MARK Resources (United States); Merrill (United States); Jones College; Stefan University; Kelly Services (United States)DOI

Citations334

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.

EarningsPortfolioProfitability indexBasis pointBusinessEconomicsFinancial economicsMonetary economicsAccountingFinanceInterest rateFinancial Markets and Investment Strategies