Causal Effect of Information Costs on Asset Pricing Anomalies

The SEC’s EDGAR introduction slashed the costs of acquiring and trading on accounting information, especially for smaller investors. We both causally identify information costs and assess how they affect stock anomalies. Using the staggered EDGAR introduction, we show that average alphas for 125 accounting anomalies decline substantially, and that the decline explains most of the pre-EDGAR alphas. By contrast, alphas for 80 non-accounting anomalies do not change significantly. Information costs are as substantial as the other limits to arbitrage.