Governance through Trading: Institutional Swing Trades and Subsequent Firm Performance

52 Pages Posted: 23 Nov 2008 Last revised: 11 Oct 2011

See all articles by David R. Gallagher

David R. Gallagher

Rozetta Institute

Peter Gardner

Plato Investment Management

Peter L. Swan

University of New South Wales (UNSW Sydney; Financial Research Network (FIRN)

Date Written: October 11, 2011

Abstract

Using unique daily fund manager trade data, we examine the role of institutional trading in influencing firm performance. We show that short-horizon informed trading by multiple institutional investors effectively disciplines corporate management. Our focus is on short-term “swing” trades, sequences with three phases (e.g. buy-sell-buy). We find swing trades increase stock price informativeness, are profitable after costs, and improve market efficiency. This increase in stock price informativeness is associated with subsequent firm outperformance. Trades are most beneficial with optimal stock holdings that reflect the information acquisition incentives of investors as well as liquidity costs.

Keywords: Informativeness, Market microstructure, Wall Street rule, Swing trading, Monitoring

JEL Classification: D82, G14, G23, G32

Suggested Citation

Gallagher, David R. and Gardner, Peter and Swan, Peter Lawrence, Governance through Trading: Institutional Swing Trades and Subsequent Firm Performance (October 11, 2011). EFA 2009 Bergen Meetings Paper, Available at SSRN: https://ssrn.com/abstract=1304911 or http://dx.doi.org/10.2139/ssrn.1304911

David R. Gallagher

Rozetta Institute ( email )

Sydney

Peter Gardner

Plato Investment Management ( email )

Level 14, 167 Macquarie St
Sydney, New South Wales 2066
Australia

Peter Lawrence Swan (Contact Author)

University of New South Wales (UNSW Sydney ( email )

School of Banking and Finance
UNSW Business School
Sydney NSW, NSW 2052
Australia
+61 2 9385 5871 (Phone)
+61 2 9385 6347 (Fax)

HOME PAGE: http://https://www.business.unsw.edu.au/our-people/peterswan

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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