The Trading Behaviour of Institutional Owners and Short Sellers Around Earnings Announcements

57 Pages Posted: 18 Jun 2009

See all articles by Henk Berkman

Henk Berkman

University of Auckland - Business School

Michael D. McKenzie

The University of Sydney - Discipline of Finance; University of Cambridge - Cambridge Endowment for Research in Finance (CERF); Financial Research Network (FIRN)

Date Written: June 17, 2009

Abstract

We find that both institutional owners and short sellers decrease their positions prior to earnings announcements, and increase their positions in the post-announcement period. Pre-announcement changes in institutional holdings and short interest have significant explanatory power with respect to the upcoming earnings announcement, where most of the explanatory power comes from institutional owners and short sellers closing positions in order to avoid losses. Analysis of post-announcement returns indicates that institutional owners, but not short sellers, successfully target stocks that underreact to earnings news, and that post-earnings announcement drift is significantly lower for stocks with higher institutional holdings. High pre-announcement short interest does not predict lower PEAD, but does predict negative post-earnings announcement returns.

Keywords: Informed Traders, Institutional Ownership, Short Selling, Earnings Announcements

JEL Classification: G14

Suggested Citation

Berkman, Henk and McKenzie, Michael David, The Trading Behaviour of Institutional Owners and Short Sellers Around Earnings Announcements (June 17, 2009). Available at SSRN: https://ssrn.com/abstract=1421496 or http://dx.doi.org/10.2139/ssrn.1421496

Henk Berkman (Contact Author)

University of Auckland - Business School ( email )

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Michael David McKenzie

The University of Sydney - Discipline of Finance ( email )

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Australia
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University of Cambridge - Cambridge Endowment for Research in Finance (CERF) ( email )

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Cambridge, CB2 1AG
United Kingdom

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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