The Effect of the 1933 Securities Act on Investor Information and the Performance of New Issues

Carol J Simon

American Economic Review, 1989, vol. 79, issue 3, 295-318

Abstract: This paper examines the effects of changes in financial disclosure attributed to the Securities Act of 1933 on the distribution of returns earned by investors. The regulation's effects should be most pronounced where private information costs were the greatest. Empirical tests control for prior stock market issues (experience) and the existence of third-party appraisal. Findings suggest that, prior to regulation, investors held rational price expectations in markets characterized by low information costs. The dispersion of abnormal returns (investors' forecast errors) is significantly lower following the Securities Act. Copyright 1989 by American Economic Association.

Date: 1989
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