The Year-End Trading Activities of Institutional Investors: Evidence from Daily Trades

39 Pages Posted: 15 Feb 2009 Last revised: 8 Dec 2013

See all articles by Gang Hu

Gang Hu

Hong Kong Polytechnic University - School of Accounting and Finance

R. David McLean

Georgetown University - Department of Finance

Jeffrey Pontiff

Boston College - Department of Finance

Qinghai Wang

University of Central Florida - College of Business Administration

Date Written: July 19, 2013

Abstract

At year-end, some allege that institutional investors try to mislead investors by placing trades that inflate performance (portfolio pumping) or distort reported holdings (window dressing). We contribute direct tests using daily institutional trades and find that year-end price inflation derives from a lack of institutional selling rather than institutional buying. In fact, institutional buying declines at year end. Consistent with pumping, institutions tend to buy stocks in which they already have large positions. We find no evidence of window dressing, as institutions are not more likely to buy high-past return stocks, or sell low-past return stocks, at year- or quarter-end.

Keywords: mutual funds, portfolio pumping, window dressing, tape painting, institutional investors

JEL Classification: G20, G23, G28, G29

Suggested Citation

Hu, Gang and McLean, R. David and Pontiff, Jeffrey and Wang, Qinghai, The Year-End Trading Activities of Institutional Investors: Evidence from Daily Trades (July 19, 2013). AFA 2010 Atlanta Meetings Paper; Review of Financial Studies, Forthcoming; AFA 2010 Atlanta Meetings Paper; EFA 2009 Bergen Meetings Paper; University of Alberta School of Business Research Paper No. 2014-11. Available at SSRN: https://ssrn.com/abstract=1343391 or http://dx.doi.org/10.2139/ssrn.1343391

Gang Hu

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M1038, Li Ka Shing Tower
Hung Hom, Kowloon
Hong Kong
(852) 3400 8455 (Phone)

HOME PAGE: http://ganghu.org

R. David McLean (Contact Author)

Georgetown University - Department of Finance ( email )

3700 O Street, NW
Washington, DC Washington DC 20057
United States

Jeffrey Pontiff

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States

Qinghai Wang

University of Central Florida - College of Business Administration ( email )

PO Box 161400
Orlando, FL 32816
United States

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