The Trading Behaviour of Institutional Owners and Short Sellers Around Earnings Announcements
University of Auckland - Faculty of Business & Economics
Michael D. McKenzie
University of Sydney - Discipline of Finance; University of Cambridge - Cambridge Endowment for Research in Finance (CERF); Financial Research Network (FIRN)
June 17, 2009
We find that both institutional owners and short sellers decrease their positions prior to earnings announcements, and increase their positions in the post-announcement period. Pre-announcement changes in institutional holdings and short interest have significant explanatory power with respect to the upcoming earnings announcement, where most of the explanatory power comes from institutional owners and short sellers closing positions in order to avoid losses. Analysis of post-announcement returns indicates that institutional owners, but not short sellers, successfully target stocks that underreact to earnings news, and that post-earnings announcement drift is significantly lower for stocks with higher institutional holdings. High pre-announcement short interest does not predict lower PEAD, but does predict negative post-earnings announcement returns.
Number of Pages in PDF File: 57
Keywords: Informed Traders, Institutional Ownership, Short Selling, Earnings Announcements
JEL Classification: G14working papers series
Date posted: June 18, 2009
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