Abstract

http://ssrn.com/abstract=1501708
 
 

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Informed Trading, Earnings Surprises, and Stock Returns


Hui Guo


University of Cincinnati - Department of Finance - Real Estate

Buhui Qiu


Erasmus University - Rotterdam School of Management

March 14, 2012

2010 CRSP Forum

Abstract:     
Entries and exits are often triggered by substantive private information, and we propose PC_NII, the percentage change in the number of a stock’s institutional investors, as a measure of informed trading. Over the 1982 to 2010 period, the top PC_NII decile outperforms the bottom PC_NII decile by 10% and 14% per annum for equal- and value-weighted portfolios, respectively. PC_NII subsumes the information content of standard institutional trading or herding measures in the forecast of stock returns, and the predictive power of PC_NII reflects its information content of future earnings surprises. The relationship between PC_NII and short-run future stock returns has attenuated noticeably for the equal-weighted portfolio since the Securities and Exchange Commission introduced Regulation Fair Disclosure in October 2000; however, we do not observe such a change for the value-weighted portfolio.

Number of Pages in PDF File: 72

JEL Classification: G12, G20

working papers series


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Date posted: November 8, 2009 ; Last revised: March 15, 2012

Suggested Citation

Guo, Hui and Qiu, Buhui, Informed Trading, Earnings Surprises, and Stock Returns (March 14, 2012). 2010 CRSP Forum. Available at SSRN: http://ssrn.com/abstract=1501708 or http://dx.doi.org/10.2139/ssrn.1501708

Contact Information

Hui Guo
University of Cincinnati - Department of Finance - Real Estate ( email )
College of Business
418 Carl H. Lindner Hall
Cincinnati, OH 45221
United States
513.556.7077 (Phone)
513.556.0979 (Fax)
HOME PAGE: http://www.business.uc.edu/Hui-Guo
Buhui Qiu (Contact Author)
Erasmus University - Rotterdam School of Management ( email )
P.O. Box 1738
Room T09-39
Rotterdam, 3062 PA
Netherlands
31-10-408-1450 (Phone)
31-10-408-9017 (Fax)
HOME PAGE: http://www.rsm.nl/home/faculty/academic_departments/finance/faculty_and_staff/faculty/Qiu_Buhui
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