Informed Trading, Earnings Surprises, and Stock Returns

2010 CRSP Forum

72 Pages Posted: 8 Nov 2009 Last revised: 15 Mar 2012

See all articles by Hui Guo

Hui Guo

University of Cincinnati - Department of Finance - Real Estate

Buhui Qiu

University of Sydney Business School; Financial Research Network (FIRN)

Date Written: March 14, 2012


Entries and exits are often triggered by substantive private information, and we propose PC_NII, the percentage change in the number of a stock’s institutional investors, as a measure of informed trading. Over the 1982 to 2010 period, the top PC_NII decile outperforms the bottom PC_NII decile by 10% and 14% per annum for equal- and value-weighted portfolios, respectively. PC_NII subsumes the information content of standard institutional trading or herding measures in the forecast of stock returns, and the predictive power of PC_NII reflects its information content of future earnings surprises. The relationship between PC_NII and short-run future stock returns has attenuated noticeably for the equal-weighted portfolio since the Securities and Exchange Commission introduced Regulation Fair Disclosure in October 2000; however, we do not observe such a change for the value-weighted portfolio.

JEL Classification: G12, G20

Suggested Citation

Guo, Hui and Qiu, Buhui, Informed Trading, Earnings Surprises, and Stock Returns (March 14, 2012). 2010 CRSP Forum, Available at SSRN: or

Hui Guo

University of Cincinnati - Department of Finance - Real Estate ( email )

College of Business
418 Carl H. Lindner Hall
Cincinnati, OH 45221
United States
513.556.7077 (Phone)
513.556.0979 (Fax)


Buhui Qiu (Contact Author)

University of Sydney Business School ( email )

Room 513, The Codrington Building
The University of Sydney
Sydney, NSW 2006
+61 2 9036 6435 (Phone)
+61 2 9351 6461 (Fax)


Financial Research Network (FIRN)

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

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics