Differential Trading Patterns of Institutional Investors Surrounding the Release of Management Forecasts of Annual Earnings

Posted: 2 Sep 1998

See all articles by Timothy D. Cairney

Timothy D. Cairney

Florida Atlantic University

Lee Mick Swartz

University of Southern California - Marshall School of Business

Abstract

This paper examines differences in the trading patterns of institutions. Investee firms with different levels and types of institutions are also examined. A method is developed to categorize institutions as active or inactive. Changes in the level of information, changes in the CAR response, changes in the type of earnings surprise and changes in trading volume are examined to detect differences across institutional types. Significant differences in CAR responses are observed between active and inactive traders, even after controlling for information surprises. In addition, the type of earnings surprise, good news versus bad news, results in differences in trading patterns across different types of institutional investors. Differences in trading volume and the timing of trading volumes are documented, as well. Active institutions tend to hold prior to good news disclosures, but no such evidence is reported for bad news disclosures. Inactive institutions do not exchange shares at same time or in the same manner as active institutions. This suggests the acquisition of private information by active institutions, but not by inactive institutions.

JEL Classification: M41, G29

Suggested Citation

Cairney, Timothy D. and Swartz, Lee Mick, Differential Trading Patterns of Institutional Investors Surrounding the Release of Management Forecasts of Annual Earnings. Available at SSRN: https://ssrn.com/abstract=121488

Timothy D. Cairney (Contact Author)

Florida Atlantic University ( email )

School of Accounting
Boca Raton, FL 33431
United States
954-236-1188 (Phone)

Lee Mick Swartz

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA California 90089
United States

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