The Differential Informativeness of Positive and Negative Stock Returns

We show negative stock returns reverse more and contain less information on the long-term changes in share prices than positive stock returns mostly on nondisclosure days, and these information differences between negative and positive returns decrease substantially on disclosure days. The results suggest investors are more likely to acquire positive information on nondisclosure days, and to obtain both negative and positive information on disclosure days. Accounting conservatism and litigation exposure compel managers to reveal their negative information in disclosures, and if managers withhold negative information they do it when investors are less likely to find the information on nondisclosure days. Moreover, we use the exogenous imposition of Reg. FD to demonstrate that positive information leakage from firms during the quarter is driving the positive slant in investors' information. Taken together, our results suggest that disclosure plays an important role in the differential informativeness and reversals of positive and negative returns