Regulation Fair Disclosure and Volatility: An Intraday Analysis

Robert B. Mendelson, Rajneesh Sharma and Daniel G. Weaver

Volume 3, Number 3, Third Quarter 2005

Regulation Fair Disclosure (Reg FD) prohibits selective disclosure policies by companies. This study uses a sample of earning announcements before and after Reg FD to examine the impact on trade size, share volume, number of transactions per day, intraday return volatility, and bid-ask spread. Our methodology avoids biases induced by changes in tick size present in previous studies. Overall our results suggest that Reg FD has been successful in its goal of reducing the level of asymmetric information surrounding firm earnings announcements. In particular we find that intraday return volatility, volume, number of transactions, and spreads are lower under the general disclosure regime provided by Reg FD than under the previous selective disclosure regime. The univariate results are unchanged by controlling for factors not associated with Reg FD.