The Freedom of Information Act and the Race Towards Information Acquisition

Market Power in the Portfolio: Product Market Competition and Mutual Fund Performance

“…However, in the case of venture capitalists, Gompers et al (2016) document that qualitative factors are more important for investment decisions than the project's valuation. In a similar spirit, Cici et al (2016) and Gargano, Rossi, and Wermers (2016) argue that more experienced and sophisticated investors interpret softer information to gain an information advantage over their peers. Processing qualitative information that leaves more room for interpretation, hence, seems to offer more valuable trading opportunities for skilled investors than processing quantitative information.…”

“…First, the paper relates to the literature on the information production of investors. Among other things, this literature classifies the type of information that investors use, e.g., by aggregation level (e.g., Kacperczyk, Nieuwerburgh, and Veldkamp (2014)), softness and complexity (e.g., Stein (2002), Gargano, Rossi, and Wermers (2016)), or source (e.g., Coval and Moskowitz (2001), Seru (2007), Fang, Peress, andZheng (2014)). I contribute to this literature by identifying product market linkages as hard-to-process information that offers valuable trading opportunities for investors.…”

Information in financial markets: Who gets it first?

“…In contrast, several other papers, including my own research, show that hedge funds play a significant role in acquiring fundamental information and incorporating this information into securities prices. Specifically, several recent papers show that hedge funds aggressively employ novel information acquisition methods, including: Solomon and Soltes (2013) which examines private meetings with company management teams, Jeng (2013) which examines "expert networks," and Gargano, Rossi, and Wermers (2014), which shows that hedge funds frequently file Freedom of Information Act (FOIA) requests with federal government agencies to acquire non-public information relating to portfolio companies such as the results of ongoing government mandated drug trials and other important regulatory approvals or restrictions.…”

“…Regulations allow for unique links between hedge fund manager compensation and investment performance, which may provide stronger incentives for hedge fund managers to exert effort and/or bear the costs in time and money associated with information generation. 4 In addition, several recent papers examine novel information acquisition methods ag-gressively used by hedge funds, including: Solomon and Soltes (2013) which examines private meetings with company management teams, Jeng (2013) which examines "expert networks," and Gargano, Rossi, and Wermers (2014), which shows that hedge funds frequently file Freedom of Information Act (FOIA) requests with federal government agencies.…”