The Price Impact Of Institutional Trading
Richard W. Sias
University of Arizona - Department of Finance
Laura T. Starks
University of Texas at Austin - Department of Finance
University of Texas at Austin - Department of Finance; National Bureau of Economic Research (NBER)
August 25, 2001
Recent studies document a strong positive relation between quarterly and annual changes in institutional ownership and returns measured over the same period. The source of this positive correlation could arise from institutional investors' intra-period positive feedback trading, institutions forecasting intra-period price changes, or from price pressure caused by institutional trades. Price pressure can in turn arise for inventory/liquidity reasons, or because market participants infer information from institutional trades. Our results suggest that the price impact of institutional trading is primarily responsible for the documented positive covariance between quarterly changes in institutional ownership and quarterly returns. Moreover, our analyses suggest this price pressure results from information revealed through institutional trading.
Number of Pages in PDF File: 43working papers series
Date posted: September 19, 2001
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