Yu Xu 许渝

Abstract: Measuring price informativeness via prices is difficult as price and return patterns do not uniquely reveal how informative prices are. This paper develops a complementary measure based on the growth rate of SEC filing requests over the 21 trading days before earnings announcements. I build a model of costly information acquisition and show that the proportional change in attention within this window is strictly decreasing in total price informativeness. Standard price-based measures exhibit a non-monotonic relationship with the slope, but become linearly related to and consistent with this measure after adjusting for volatility, liquidity, and noise. Higher slopes are associated with larger absolute announcement-window returns and stronger earnings responses, even after accounting for standard informativeness measures.

Abstract: We test performance evaluation in the context of the Rational Expectations Equilibrium (REE) Paradigm. Using a metric based on insider trading activity, we classify mutual funds as informed versus uninformed. Consistent with the theory, we find a strongly statistically significant overperformance of informed funds over uninformed funds, and this overperformance is only partially explained by fund connections with insiders. Based on the strong positive results obtained, we develop a micro-founded new measure of performance evaluation, Informed Alpha, which beats the standard Jensen alpha, as well as the multifactor alphas, as measures of performance. We show that Informed Alpha sorts truly talented managers who exhibit strong persistence in their performance.