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Institutional Trading and the Turn-of-the-Year Effect

Lilian K. Ng
University of Wisconsin - Milwaukee - Sheldon B. Lubar School of Business

Qinghai Wang
Georgia Institute of Technology

Abstract:
This study provides evidence that links institutional trading
behavior directly to anomalous turn-of-the-year (TOY) return
patterns of small stocks. We find that TOY trading patterns of
institutions reflect strategies that are generally consistent with window-dressing and risk-shifting behaviors. Institutions sell more loser small stocks in the last quarter of the year, but buy more small stocks, both winners and losers, in the first quarter. Institutional buying (selling) of loser stocks at year-end weakens (strengthens) the TOY effect. In addition, buying of winner stocks after year-end causes a statistically-significant, though weaker, effect.

Keywords: Institutions, Window-Dressing, Risk-Shifting, Turn-of-the-Year Effect

JEL Classifications: G12, G14, G20

Working Paper Series

Date posted: July 22, 2003 ; Last revised: July 23, 2003

Suggested Citation

Ng, Lilian K. and Wang, Qinghai,Institutional Trading and the Turn-of-the-Year Effect. Available at SSRN: http://ssrn.com/abstract=412183 or DOI: 10.2139/ssrn.412183

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Contact Information

Lilian K. Ng (Contact Author) University of Wisconsin - Milwaukee - Sheldon B. Lubar School of Business ( email ) P.O. Box 742 3202 N. Maryland Ave. Milwaukee, WI 53201-0742 United States 414-229-5925 (Phone) 414-229-6957 (Fax)
Qinghai Wang Georgia Institute of Technology ( email ) 800 West Peachtree St., NW Atlanta, GA 30308-1149 United States 404-3853266 (Phone)