Institutional Stakeholdings and Better-Informed Traders at Earnings Announcements
University of Texas at Dallas - Naveen Jindal School of Management
University of Arizona - Department of Finance
Oliver Zhen Li
National University of Singapore
Journal of Accounting and Economics, Forthcoming
Utama and Cready (1997) use total institutional ownership to proxy for the proportion of better-informed traders, an important determinant of trading around earnings announcements. We argue that institutions holding small stakes cannot justify the fixed cost of developing private predisclosure information. Also, institutions with large stakes generally do not trade around earnings announcements since they are dedicated investors or face regulations that make informed trading difficult. However, institutions holding medium stakes have incentives to develop private predisclosure information and trade on it; we show that their ownership is a finer proxy for the proportion of better-informed traders at earnings announcements.
Number of Pages in PDF File: 44
Keywords: institutional investors, informed traders, trading volume
JEL Classification: G12, M41, G32
Date posted: June 3, 2004 ; Last revised: July 2, 2008
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