Institutional trading and share returns

F. Douglas Foster; David R. Gallagher; Adrian Looi

doi:10.1016/j.jbankfin.2011.05.018

Institutional trading and share returns

F. Douglas Foster, David R. Gallagher^*, Adrian Looi

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

20 Citations (Scopus)

Abstract

Using a unique database of daily transactions from Australian equity managers, we investigate the relation between institutional trading and share returns. The 34 institutional investors included in our sample exhibit a statistically and economically significant ability to predict large capitalization share returns for the ten days following their trades. Detailed analysis indicates that investment manager style is important in understanding the link between institutional trading and stock returns. The contemporaneous relation between institutional trading and returns depends on trade size, broker use, and investment style. We find growth-oriented managers are momentum traders, while style-neutral and value managers are contrarian.

Original language	English
Pages (from-to)	3383-3399
Number of pages	17
Journal	Journal of Banking and Finance
Volume	35
Issue number	12
DOIs	https://doi.org/10.1016/j.jbankfin.2011.05.018
Publication status	Published - Dec 2011

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10.1016/j.jbankfin.2011.05.018

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abstract = "Using a unique database of daily transactions from Australian equity managers, we investigate the relation between institutional trading and share returns. The 34 institutional investors included in our sample exhibit a statistically and economically significant ability to predict large capitalization share returns for the ten days following their trades. Detailed analysis indicates that investment manager style is important in understanding the link between institutional trading and stock returns. The contemporaneous relation between institutional trading and returns depends on trade size, broker use, and investment style. We find growth-oriented managers are momentum traders, while style-neutral and value managers are contrarian.",

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AB - Using a unique database of daily transactions from Australian equity managers, we investigate the relation between institutional trading and share returns. The 34 institutional investors included in our sample exhibit a statistically and economically significant ability to predict large capitalization share returns for the ten days following their trades. Detailed analysis indicates that investment manager style is important in understanding the link between institutional trading and stock returns. The contemporaneous relation between institutional trading and returns depends on trade size, broker use, and investment style. We find growth-oriented managers are momentum traders, while style-neutral and value managers are contrarian.

KW - Informed trading

KW - Institutional trading

KW - Market impact

KW - Trading behavior

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Institutional trading and share returns

Abstract

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