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Mandatory Disclosure and Stock Returns: Evidence from the Over-the-Counter Market

Listed author(s):
  • Allen Ferrell
Registered author(s):

    Mandatory disclosure requirements placed on publicly traded firms constitute the core of U.S. securities regulation. Despite their importance, few empirical studies have been done on the impact of mandatory disclosure requirements on the capital markets. Using a unique database created for this study, this paper examines the impact of the 1964 imposition of mandatory disclosure requirements on the over-the-counter (OTC) market in terms of volatility and stock returns. The effect of the 1964 regulatory change has never been examined prior to this paper, despite its being the only fundamental change in disclosure regulation since the original 1930s securities acts. This study finds that mandatory disclosure is associated with both a dramatic reduction in the volatility of OTC stock returns and with OTC stocks enjoying positive abnormal returns.

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    File URL: http://dx.doi.org/10.1086/511898
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    Article provided by University of Chicago Press in its journal The Journal of Legal Studies.

    Volume (Year): 36 (2007)
    Issue (Month): 2 (06)
    Pages: 213-251

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    Handle: RePEc:ucp:jlstud:v:36:y:2007:p:213-251
    DOI: 10.1086/511898
    Contact details of provider: Web page: http://www.journals.uchicago.edu/JLS/

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    1. Kenneth D. West, 1986. "Dividend Innovations and Stock Price Volatility," NBER Working Papers 1833, National Bureau of Economic Research, Inc.
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    8. Fama, Eugene F & French, Kenneth R, 1992. " The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-465, June.
    9. Roberta Romano, 1998. "Empowering Investors: A Market Approach to Securities Regulation," Yale School of Management Working Papers ysm74, Yale School of Management.
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    11. Healy, Paul M. & Palepu, Krishna G., 2001. "Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 405-440, September.
    12. Simon, Carol J, 1989. "The Effect of the 1933 Securities Act on Investor Information and the Performance of New Issues," American Economic Review, American Economic Association, vol. 79(3), pages 295-318, June.
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