Is news really news? The effects of selective disclosure regulations (Kitchens et al., 2024)

Welcome to Revise and Resubmit, the podcast where we dive into groundbreaking research, decoding complex ideas and bringing them to life. Today, we have a fascinating discussion lined up, one that will make you rethink the very nature of news in financial markets. We’re talking about the research paper titled Is news really news? The effects of selective disclosure regulations, authored by Brent Kitchens, Robert Parham, and Chris Yung. This study, published in the prestigious Review of Finance, an FT50 journal, takes a deep dive into how markets respond to news and whether the information we receive is truly "news" to investors. Before regulations in the U.S. and the EU prohibited selective disclosure, much of the information was already leaked to certain insiders before being released to the public. News days, as the authors reveal, were often just a formality. But with new regulations in place, markets are now reacting in real time. And here's where it gets even more intriguing: countries like Australia and Japan, where similar measures weren’t implemented, show starkly different market behavior. As we explore this study, we'll talk about how selective disclosure impacts the famous Roll’s R2 puzzle, a long-standing question in finance. But before we get to that, let's thank Brent Kitchens, Robert Parham, Chris Yung, and Oxford Academic & the European Finance Association for making this valuable research accessible. So, here’s the question: In a world of insider access and regulatory shifts, are we ever truly getting the whole story when the news breaks, or are we always a step behind? Reference Kitchens, B., Parham, R., & Yung, C. (2024). Is news really news: The effects of selective disclosure regulations. Review of Finance, rfae030. https://doi.org/10.1093/rof/rfae030