How Can Hedge Fund Managers Use FOIA Requests to Generate Abnormal Returns in Pharma Stocks?

The efficient market hypothesis holds that the price of a publicly-traded security already reflects all relevant public information about that security.  A recent econometric study casts doubt on that theory, at least with regard to public information maintained by U.S. government agencies; the reason for this discrepancy is that some information, though public, is not widely disseminated and may be difficult to obtain or interpret.  The authors of the study researched FOIA requests made by specific institutional investors with respect to specific, publicly-traded securities and concluded that such investors were able to “translate the FOIA information received into profitable trades.”  This article summarizes the paper and provides guidance for hedge fund managers looking to use FOIA requests to boost investment returns.  On the role of FOIA and similar state statutes in the hedge fund industry, see “Repeal of Dodd-Frank Confidentiality Protection for SEC: What Investment Advisers Lost and What Remains,” Hedge Fund Law Report, Vol. 3, No. 47 (Dec. 3, 2010); and “Ten Strategies for Preventing Disclosure of Confidential Hedge Fund Data under State Sunshine Laws,” Hedge Fund Law Report, Vol. 5, No. 18 (May 3, 2012).

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