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Institutional Stakeholdings and Better-Informed Traders at Earnings AnnouncementsAshiq AliUniversity of Texas at Dallas - Naveen Jindal School of Management Sandy KlasaUniversity of Arizona - Department of Finance Oliver Zhen LiNational University of Singapore February 2008 Journal of Accounting and Economics, Forthcoming Abstract: 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 working papers seriesDate posted: June 3, 2004 ; Last revised: July 2, 2008Suggested CitationContact Information
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