Mutual Fund Trading Pressure: Firm-Level Stock Price Impact and Timing of SEOs

47 Pages Posted: 19 Mar 2009 Last revised: 8 Jul 2011

Mozaffar Khan

University of Minnesota - Twin Cities - Carlson School of Management

Leonid Kogan

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

George Serafeim

Harvard University - Harvard Business School

Multiple version iconThere are 2 versions of this paper

Date Written: June 23, 2011

Abstract

We use price pressure resulting from purchases by mutual funds with large capital inflows to identify overvalued equity. This is a relatively exogenous overvaluation indicator as it is associated with who is buying – buyers with excess liquidity – rather than what is being purchased. We document substantial stock price impact associated with purchases by high-inflow mutual funds, and find the probability of an SEO, insider sales, and the probability of a stock-based acquisition increase significantly in the four quarters following the mutual fund buying pressure. These results provide new evidence that firm managers are able to identify and exploit overvalued equity.

Keywords: SEO, Market Timing, Price Impact, Trading Pressure, Mutual Fund

JEL Classification: G10, G11, G12, G14, G23, G30, G32

Suggested Citation

Khan, Mozaffar and Kogan, Leonid and Serafeim, George, Mutual Fund Trading Pressure: Firm-Level Stock Price Impact and Timing of SEOs (June 23, 2011). AFA 2010 Atlanta Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1364974 or http://dx.doi.org/10.2139/ssrn.1364974

Mozaffar Khan (Contact Author)

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

Leonid Kogan

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-636
Cambridge, MA 02142
United States
617-253-2289 (Phone)
617-258-6855 (Fax)

HOME PAGE: http://web.mit.edu/lkogan2/www/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

George Serafeim

Harvard University - Harvard Business School ( email )

381 Morgan Hall
Boston, MA 02163
United States

HOME PAGE: http://drfd.hbs.edu/fit/public/facultyInfo.do?facInfo=ovr&facId=15705

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