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Lazy Prices

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  • LAUREN COHEN
  • CHRISTOPHER MALLOY
  • QUOC NGUYEN

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.

Suggested Citation

  • Lauren Cohen & Christopher Malloy & Quoc Nguyen, 2020. "Lazy Prices," Journal of Finance, American Finance Association, vol. 75(3), pages 1371-1415, June.
    • Handle: RePEc:bla:jfinan:v:75:y:2020:i:3:p:1371-1415
    DOI: 10.1111/jofi.12885
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    References listed on IDEAS

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